ISLAMABAD – Sandwiched between twin deficits and rising public pressure to reduce inflation, Pakistan received pledges on Wednesday from friendly countries China, Saudi Arabia, and the United Arab Emirates to roll over debt for a year.
According to Bloomberg, China, Saudi Arabia, and the UAE’s generosity is seen as a shot in the arm for the government, which is awaiting final approval from the International Monetary Fund (IMF) for a fresh $7 billion loan package.
Pakistan has a specific arrangement with several friendly countries, which provide financial support in the form of commercial loans and SAFE deposits that are rolled over annually to assist Pakistan in meeting its financial needs and avoiding default.
According to reports, Pakistan seeks a three-year extension of the maturity period of loans worth $5 billion from China, $4 billion from Saudi Arabia, and $3 billion from the UAE, which might provide better assurance under the IMF plan.
According to Bloomberg sources, Finance Minister Muhammad Aurangzeb told the media in Islamabad that the number of rollovers would be the same as previous year, and that the country had $12 billion in bilateral loans.
NEW $7 BILLION LOAN DEAL WITH THE IMF
Pakistan is poised to strike a staff-level agreement with the IMF on a new $7 billion loan to strengthen its economy and pay down its debts.
Earlier this year, the IMF approved the immediate release of the final $1.1 billion tranche of Pakistan’s $3 billion bailout. Finance Minister Muhammad Aurangzeb stated that the government intended to seek a long-term loan to help stabilize the economy following the completion of the bailout package.
The new loan will last 37 months. The IMF stated that it aims to strengthen fiscal and monetary policy, as well as reforms to broaden the tax base, improve the management of state-owned enterprises, strengthen competition, ensure a level playing field for investment, improve human capital, and scale up social protection through increased generosity and coverage in a major welfare programme.
“The programme aims to capitalise on the hard-won macroeconomic stability achieved over the past year by furthering efforts to strengthen public finances, reduce inflation, rebuild external buffers and remove economic distortions to spur private sector-led growth,” explained Nathan Porter, the head of the IMF’s Pakistan mission.
The accord requires approval by the IMF’s executive board.
Pakistan’s new coalition government submitted its first budget to parliament last month, promising up to a 25% boost in government employee salaries and setting an ambitious tax collection target.
The finance minister stated that Pakistan aimed to collect Rs13 trillion ($44 billion) in taxes, which would be 40% more than the current fiscal year.
Aurangzeb also stated that the administration will ensure that the number of taxpayers increased. “Only about five million people in Pakistan pay taxes.”
In 2023, Pakistan nearly defaulted on its foreign loans.
