ISLAMABAD: According to The News, the World Bank has linked the approval of the second RISE-II (Resilient Institution for Sustainable Economy) loan to the completion of the stalled International Monetary Fund (IMF) programme, undermining Pakistan’s efforts to secure loans from multilateral creditors.
The World Bank’s RISE-II programme anticipates $450 million in loans.
The Asian Infrastructure Investment Bank (AIIB) would also contribute $250 million, giving Pakistan a total of $700 million in programme loans during the current fiscal year 2022-23.
The approval of the second RISE programme, on the other hand, has been linked to macroeconomic stability and the completion of the pending IMF review.
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The revival of the IMF programme has so far proved a hard nut to crack, as both sides are engaged in talks since February but the staff-level agreement could not be realised.
Despite the passage of nearly three months, the staff-level agreement has yet to be reached, owing to the inability of the Fund to close the gross external financing gap.
When Pakistan and the IMF concluded in-person talks on February 9, the IMF estimated that Pakistan needed $7 billion in gross external financing for the current fiscal year.
Given the improvement in the current account deficit, which resulted in a $654 million surplus for the previous month, the IMF reduced the requirement for external financing to $6 billion, and then to $5 billion.
Pakistan received confirmation on the financing of $2 billion from Saudi Arabia and $1 billion from the United Arab Emirates, out of a total external financing requirement of $5 billion. However, formal agreements have yet to be reached.
The Pakistani authorities, on the other hand, claimed that a formal agreement had been exchanged and that it would be implemented.
The remaining $2 billion in external financing is still outstanding. The Pakistani authorities claimed that the World Bank and AIIB were expected to disburse $700 million in programme loans during the current fiscal year.
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Pakistan expects $300 million in project financing from international donors from the remaining $1.3 billion until the end of June 2023 for flood-affected areas.
The remaining $1 billion in financing must now be obtained from international commercial banks. It is unclear how this $1 billion financing from commercial banks will be secured, as the banks requested signing an agreement with the IMF but the Fund requested confirmations.
The Pakistani side did not rule out the possibility of a “political angle” being involved in the IMF’s stalling tactics. Pakistan has been trapped between the United States and China, and the authorities have no idea how to get the country out of its current predicament.
In response to a question sent to the World Bank’s spokesperson, the officials said: “The World Bank continues to work with the Government of Pakistan on the preparation of the RISE-II Development Policy Operation, including discussions around supported policy actions on which there has been considerable progress recently; the adequacy of the macroeconomic framework; the financing amount; and the timeline for approval, in particular, as it relates to the completion of the ongoing IMF review”.
Meanwhile, former economic adviser Dr Khaqan Najeeb explained that the IMF’s ninth review based on September 22 data was largely focused on the financing gap. Both parties have moved closer together as the KSA, UAE, and multilateral financing have been confirmed.
Commercial financing is difficult with a very low country credit rating, he added, but the restoration of the IMF programme can help in this regard.
He emphasised that Pakistan’s access to multilateral project aid and programme financing, such as Rise II and associated co-financing, was heavily reliant on the IMF’s programme revival.
With $3.7 billion in repayments due by June 30, Pakistan must secure all dollar financing, including that from the IMF, friendly countries, bilateral, multilateral, and some commercial loans, he concluded.
