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Pak likely to get between $8 billion to $12 billion bailout package by mid-May: Finance Minister

File photo. Photograph:( Reuters )

PTI Karachi, Pakistan Mar 29, 2019, 10.44 PM (IST)

Cash-strapped Pakistan is likely to secure a bailout package between $6 billion and $12 billion from the IMF by the middle of May after the two sides significantly bridged the "gap" on the terms of the deal, Finance Minister Asad Umar has said.

The Pakistan Tehreek-i-Insaf (PTI) government led by Prime Minister Imran Khan has been grappling with a severe balance of payments crisis. Islamabad has sought help from close allies like China, Saudi Arabia and the UAE to bail itself out from a severe balance-of-payments crisis that threatens to cripple the country's economy.

"We're approaching the landing zone," said Umar. 

"The gap between our position and the IMF's is significantly less than what it was a few months back," he told the Financial Times.

His comments came after a meeting with IMF mission chief for Pakistan Ernesto Ramirez-Rigo this week. 

Rigo visited Islamabad and Karachi for introductory meetings with Pakistani authorities. He assumed Pakistan mission chief responsibilities earlier this month. This was his first visit to the country, Geo News reported.

Umar said he hoped an agreement would be reached with the International Monetary Fund by "late April, first half of May". The package would be of between $6 billion and $12 billion, Dawn newspaper reported, quoting Umar as telling the British daily.

A sticking point in the negotiations between the two sides seems to be the exchange rate management of the rupee, which has lost 33 per cent of its value since 2017 when compared to that of the dollar.

"There is no conceptual difference between us and the IMF, the exchange rate needs to be reflective of the market," said Umar. 

"How you implement it and the sequence in which those steps have to be taken have been a part of the discussion and continue to be," he said.

According to analysts, the IMF has been suggesting measures such as a free-floating rupee, which would result in a further devaluation of the currency, and structural changes such as widening of the tax base.

In October, IMF Managing Director Christine Lagarde said that any IMF loan, whether to Pakistan or other countries, requires "a complete understanding and absolute transparency about the nature, size and terms of the debt that is bearing on a particular country."

The US has made it clear that it would make all efforts to ensure that any IMF loan to Pakistan is not used to repay its Chinese debt.

"We are working and making clear within the IMF that if it were going to supply any funding to Pakistan that it would not be used to repay Chinese loans," David Malpass, Under Secretary of Treasury for International Affairs, told lawmakers during a Congressional hearing in December.

While China has pumped-in $4.1 billion, Pakistan has got US $3 billion from Saudi Arabia and $2 billion from the United Arab Emirates.

That is why some analysts have voiced concerns about whether it will be able to pay back loans it has taken and if it will be able to repay China for the USD 62 billion it is receiving as part of the China-Pakistan Economic Corridor initiative.

But Umar dismissed the suggestion that the country's debt to China posed a problem. "I have a debt problem, a serious debt problem, but not a China debt problem."

A cornerstone of those reforms will be complying with conditions of the Financial Action Task Force (FATF), which has been scrutinising Pakistan's performance vis-a-vis combating money laundering and funding of terrorism.

"We believe that sufficient steps are being taken" in this regard, Umar said.

Experts say a green light from FATF would be essential to unlocking IMF money, the report said. 

"I think it's naive to assume that there is no relationship between FATF and the next IMF programme," said a former finance official.

"The IMF will probably demand some major changes in the banking structure, which are also the kinds of changes that are being sought by FATF," the official was quoted as saying by the report.

Story highlights

The Pakistan Tehreek-i-Insaf (PTI) government led by Prime Minister Imran Khan has been grappling with a severe balance of payments crisis. Islamabad has sought help from close allies like China, Saudi Arabia and the UAE to bail itself out from a severe balance-of-payments crisis that threatens to cripple the country's economy.