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Pakistan closer to IMF deal after UAE pledges $1bn

The UAE has joined Saudi Arabia in pledging financial support to Pakistan Reuters/Faisal Mahmood
The UAE has joined Saudi Arabia in pledging financial support to Pakistan
  • Pakistan faces balance of payments shortfall in June
  • IMF chief seeks further funding for the country
  • Tough measures imposed since a 2019 bailout

The UAE has confirmed financial support of $1 billion to Pakistan, the South Asian nation’s finance minister said on Friday.

The commitment removes a key hurdle to securing a much-awaited bailout tranche from the International Monetary Fund (IMF).

The commitment is one of the lender’s last requirements before approving a staff-level pact to release a tranche of $1.1 billion, delayed for months, that is crucial for Pakistan to resolve an acute balance of payments crisis.

“The State Bank of Pakistan is now engaged for needful documentation for taking the said deposit from UAE authorities,” finance minister Ishaq Dar said on Twitter, referring to the central bank.

The external financing is needed to fully fund the country’s balance of payments gap for the fiscal year that ends in June.

On Thursday the IMF’s managing director, Kristalina Georgieva, said the fund was also in talks with nations friendly to Pakistan to secure financial assurances vital for the program.

Last week Saudi Arabia also told the IMF it would provide financing of $2 billion to Pakistan.

Its foreign exchange reserves have fallen to cover barely a month of imports after the IMF funding stalled in November. It had been hit by snags over fiscal policy adjustments until officials of the lender visited Islamabad in February for talks.

They formed part of a ninth review exercise on a bailout package of $6.5 billion agreed in 2019. Its resumption is critical for Pakistan to avoid risking default on external payment obligations.

It had to complete actions demanded by the IMF, such as reversing subsidies in its power, export and farming sectors. Hikes in the prices of energy and fuel, and a permanent power surcharge were among other measures sought.

These steps also included jacking up its key policy rate to an all-time high of 21 percent, a market-based exchange rate, arranging for the external financing, and raising more than 170 billion rupees ($613 million) in new taxes.

The fiscal adjustments have already fuelled its highest ever inflation, which climbed in March to more than 35 percent on the year.

The only issue left to be resolved is a fuel pricing scheme Pakistan has announced to give relief to its lower middle class and poor from crippling inflation.

Dar has said Pakistan has given details of the scheme to the IMF, which has asked how it would it find the resources needed.

The IMF program will disburse another tranche of $1.4 billion to the country before it concludes in June.

Funds from the lender will also unlock other bilateral and multilateral financing for the cash-strapped country.