Pakistan has asked the International Monetary Fund (IMF) to relax conditionalities under the $ 6 billion Extended Fund (EFF) related to the Financial Action Task Force (FATF) and the issuance of sovereign guarantees to help raise more than $ 4 billion of national and international funds markets.
Pakistan has budgeted around $ 3 billion of bonds (around Rs450 billion) – Islamic Sukuk and Eurobond – to be launched in international capital markets during the current fiscal year to meet the EFF objectives for foreign exchange inflows . Separately, the government has planned to raise around Rs200bn from national Islamic banks so that the electricity sector reduces circular debt.
“We are dying to complete these transactions as soon as possible,” said a senior official, adding that capital market conditions were never as conducive as they are today. He said bond yields had plummeted to almost zero in international capital markets and that it was difficult for investors to make a profit on guaranteed paper. “This provides an ideal opportunity for Pakistan to take advantage of international capital markets to secure sovereign bonds at a minimum interest rate,” the official said.
Pakistan had last tapped the international capital markets in 2016 at about 8.25 per cent mark-up when average yield hovered between 3pc and 5pc for other countries.
Likewise, the government had negotiated Islamic financing worth around Rs200bn for the power sector from domestic banks in recent months on top of another Rs200bn secured earlier this year.
But all these transactions are handicapped by the IMF conditionalities as part of the 39-month EFF. One of the structural benchmarks under the IMF programme is for Pakistan to “adopt measures to strengthen the effectiveness of AML/CFT (anti-money laundering/combating the financing of terrorism) framework to support the country’s efforts to exit the FATF list of jurisdictions with serious deficiencies” by the end of October 2019.
Likewise, one of the six performance criteria under the IMF programme for Pakistan is to have a “ceiling on the amount of government guarantees” to the extent of Rs1.6 trillion throughout the current year i.e. until end-June 2020.
Officials said the authorities had argued that the FATF had a very wide scope, at times of geo-political nature, having no direct link to the economic support package which should be dealt purely on the basis of financial and monetary policies.
A senior official said Pakistan had achieved almost all the targets for the first quarterly review and achieved about Rs9bn saving in current expenditures of the government. The size of sovereign guarantees stood at Rs1.6tr as of end-June 2019 against Rs1.3tr at the end of December 2018.
An IMF team led by Mission Chief to Pakistan Ernesto Ramirez-Rigo is currently in Pakistan for the first review under the $6bn bailout package and will wind up the visit by Nov 7. The successful completion of the review would enable Pakistan to draw another $453 million from the Fund in the first part of December this year, taking the total amount to almost $1.44bn.
The IMF had in July this year made an upfront disbursement of $991m on completion of all prior-actions committed by Pakistan before signing the Fund programme.
