The International Monetary Fund (IMF) has revised Pakistan’s foreign loan requirements for the current fiscal year, reducing it by $3.4 billion to $25 billion. The IMF’s adjustments, made during the first review talks of the $3 billion bailout package, also included a lowering of the economic growth projection to 2%, rejecting the government’s external and macroeconomic forecasts. The IMF further fine-tuned its inflation projection for the country, bringing it down to 22.8% for this fiscal year from the earlier estimate of 25.9%.
Finance ministry sources revealed that the IMF did not endorse various projections put forth by the finance ministry, encompassing the current account deficit (CAD), imports, economic growth, inflation, and gross financing requirements. These revisions were part of the first review discussions held this week and reflect the IMF’s scrutiny and adjustments based on the evolving economic landscape.
Despite the reduction in foreign loan requirements, the government has already secured $6 billion in loans within four months, with expectations of rollovers amounting to $12.5 billion. The remaining financing needs, approximately $6.5 billion, pose an ongoing challenge, especially with a cut of $3.7 billion in estimated available financing due to issues in acquiring loans through Eurobonds and foreign commercial banks.
Notably, the IMF disagreed with Pakistan’s projection of a $4 billion to $4.5 billion CAD for this fiscal year, revising it to $5.7 billion, a reduction of about $770 million from its previous estimates. The lender also adjusted the import projection to $58.4 billion, $6.3 billion less than its estimate in July. Additionally, the IMF revised foreign remittances to $29.4 billion and exports to $30.6 billion.
The significant reduction in foreign loan requirements primarily stems from the private sector’s lower repayments, down by approximately $2 billion. Public sector debt repayments also saw a reduction, about $700 million, due to the rollover of dues by China’s Exim Bank. However, despite these adjustments, the estimated available financing decreased to $26.6 billion, signaling a lack of interest from global markets and foreign commercial banks in providing fresh loans to Pakistan.
In terms of economic growth, the IMF lowered its projection to 2%, aligning with the World Bank and Asian Development Bank’s forecasts, rejecting Pakistan’s optimistic outlook of 3% to 3.5% growth. The inflation rate forecast was also adjusted to 22.8%, offering potential room for lowering interest rates in the upcoming monetary policy announcement in January.
The IMF’s nuanced adjustments underscore the evolving economic challenges and the imperative for Pakistan to navigate a complex financial landscape. These changes also highlight the importance of continuous collaboration and adaptation to ensure the country’s economic resilience.