China, Saudi Arabia and the United Arab Emirates have agreed to extend cash-strapped Pakistan’s $12 billion loan by a year, while the International Monetary Fund (IMF) is likely to approve its $7 billion relief package later this month.
Pakistan Finance Minister Muhammad Aurangzeb told reporters after a meeting of the Senate Standing Committee on Finance yesterday that there was no delay in the IMF Executive Board meeting, scheduled to be held by the end of this month to approve the $7 billion Extended Fund Facility, the Express Tribune reported today.
The executive board is scheduled to meet on August 28 to approve the $7 billion package, the report said, citing government officials.
It said the development ends the uncertainty over the timing of the executive board meeting, which was dependent on the repayment of loans by Pakistan’s three traditional lenders.
Aurangzeb said the $12 billion cash deposited by China, Saudi Arabia and the United Arab Emirates will be extended for one year like last time. Earlier, he had said the IMF had asked for an extension for three to five years before the executive board meeting.
However, he clarified that the requirement was to secure the rollover for one year, but the government was trying to do these rollovers for three to five years. He said all the three bilateral lenders have agreed to extend the loan on the existing terms and conditions.
The IMF last month announced a staff-level agreement for US$7 billion, subject to Executive Board approval and financing commitments from bilateral and multilateral lenders.
The finance minister said there was no point in seeking a hike in interest rates on these loans when the country’s foreign exchange reserves had become stronger than a year ago. He said the IMF has identified a financing gap of only USD 3-5 billion over the three-year programme period, which is quite manageable.
“Pakistan has also received an offer from a foreign commercial bank but we are awaiting the IMF board’s approval to ask the lender to cut the proposed interest rates,” Aurangzeb said, without disclosing the name, adding that the offer came from a non-Gulf and non-Chinese commercial bank.
A finance ministry official said Standard Chartered Bank has offered a loan of less than $400 million but is asking for double-digit interest rates, which the government cannot afford. Aurangzeb said the government will wait for the IMF board’s approval for the interest rate cut proposed by the commercial bank.
The finance minister said two important developments had taken place in the last few days that showed Pakistan was on the path to achieving macroeconomic stability. He termed the decision of Fitch rating agency to upgrade Pakistan’s credit rating by one notch and the central bank to cut interest rates by 1% as “very important elements for achieving macroeconomic stability”.
When asked why Standard & Poor had not improved Pakistan’s CCC+ rating, the minister said raising the CCC+ rating to B negative would have been a big leap.
He hoped that all three rating agencies would improve Pakistan’s status to B negative by the end of this year, a grade where it would be able to access international capital markets and issue sovereign bonds at relatively lower rates than the current CCC+ rating.
Three international credit rating agencies have rated Pakistani bonds below investment grade due to their weak economic position and heavy external financing requirements. However, last week Fitch upgraded the rating by one notch – from CCC to CCC+ – which was still below investment grade.
The finance minister said the government is pursuing the issuance of Panda bonds in the Chinese markets and has appointed a Chinese financial advisory firm to complete the transaction by the end of this calendar year or early 2025.
Aurangzeb said the government was also considering hiring another Chinese financial adviser to secure energy loan rollovers. He said Pakistan has requested an extension of up to five years in the energy loan, but it will take time to reach any agreement.
He said converting Chinese power plants from imported coal to local coal would also take at least two to three years.
The finance minister also said that the government has launched a privatisation programme to cut expenditure and is working on closing down or merging ministries. “The time has come to give the federal government the right shape,” Aurangzeb said.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
