Following a calamity brought on by climate change in Pakistan, Pakistan is requesting debt forgiveness from its bilateral Paris Club creditors, according to Finance Minister Miftah Ismail.
The country hasn’t asked for or needs any help from commercial banks or Eurobond debtors, nevertheless.
1. Given the climate-induced disaster in Pakistan, we are seeking debt relief from bilateral Paris Club creditors. We are neither seeking, nor do we need, any relief from commercial banks or Eurobond creditors. We have a $1 bn bond due in December which we will pay on time and
— Miftah Ismail (@MiftahIsmail) September 23, 2022
“Given the climate-induced disaster in Pakistan, we are seeking debt relief from bilateral Paris Club creditors. We are neither seeking nor do we need, any relief from commercial banks or Eurobond creditors. We have a $1 bn bond due in December, which we will pay on time in full. We have been servicing all our commercial debts and will continue to do so. Our Eurobond debt is only $8 bn due between now & 2051. That’s not a large burden. A significant portion of our debt is from friendly countries who have said they will re-roll their deposits,” he stated in his tweets.
Pakistan has asked the IMF for a relaxation of its targets under the current Extended Fund Facility (EFF) programme, a reduction in fuel price adjustments, and the clubbing of the next two tranches in order to gain financial space. Pakistan has no plans to request debt cancellation from multilateral lenders like the World Bank, Asian Development Bank, or IMF.
“Islamabad also made a request to the IMF for exploring possibilities to provide additional funding from other windows by jacking up the quota into the fold of the IMF,” top official sources confirmed while talking to The News here on Friday.
Miftah Ismail, the finance minister, told this reporter that Pakistan did not ask the IMF or the World Bank to discharge any of its debt since it did not need to do so at all when he was reached while he was visiting the US.
The minister claimed that the FPA for energy was burdening our consumers, so the premier asked the IMF MD to take a look at lowering the FPA so that people could pay lower power prices.
He claimed that the prime minister also asked the IMF to investigate the potential of extra finance from the IMF through other open windows by increasing Pakistan’s quota.
The minister claimed that following a flood, the country’s macroeconomic condition completely shifted, with exports potentially declining while imports potentially rising. This made it more challenging for the nation to manage its external funding. Due to the severe consequences of the mega floods, the nation may need to import more agricultural items like wheat and cotton. The recent floods cost Pakistan’s beleaguered economy $30 billion in losses at a time when Islamabad was estimated by the IMF to have needed $30 billion in gross funding in the pre-flood situation. In the aftermath of rising pressure on the trade deficit and yawing of the current account deficit, the external sector may experience pressure.
Minister for Finance Miftah Ismail responded to another inquiry about his meeting with WB officials by saying that the WB agreed to repurpose $2 billion in loans for the flood-affected districts. The favourable consequences of our discussions with WB officials continued to be very fruitful, and they will assist stabilise the nation’s economy, he said in closing.
Other top government officials, however, said that Pakistan was unable to use a Rapid Financing Instrument (RFI) in the wake of the floods since such a window could only be used when the nation had no other Fund programme. When asked how Pakistan had managed to secure a $1.4 billion RFI from the IMF during the previous PTI-led administration in response to the Covid-19 outbreak, the responsible official responded that Pakistan had received an RFI facility when the EFF was installed mode. The government was unable to request an RFI at this time because the IMF programme has been reinstated following the conclusion of the 7th and 8th reviews and the disbursement of the tranche. There are options for looking through other windows, though.
The IMF members with existing robust policies may use the Flexible Credit Line or the Precautionary and Liquidity Line to assist avert or lessen crises and increase market confidence during times of increased risk. Rapid assistance is given to nations with urgent balance of payments needs, including those caused by natural catastrophes, commodity price shocks, and internal instabilities, through the Rapid Financing Instrument and the related Rapid Credit Facility for Low-Income Countries.