KARACHI: The International Monetary Fund’s (IMF) $3 billion bailout deal will provide much-needed fiscal space to Pakistan but not solve the country’s long-term problems, financial experts and economists said on Saturday.
Subject to the IMF’s board approval in July, the stand-by arrangement (SBA) provides breathing space to a Pakistani economy staring at default and in dire need of external financing. The staff-level pact was announced a day before Pakistan’s previous $6.5 billion loan program with the IMF expired.
Cash-strapped Pakistan will get $1.1 billion in funds under the new financing arrangement right after the IMF’s board meeting in mid-July. The new deal provides Pakistan more than the $2.5 billion disbursement it expected to receive under the Extended Fund Facility (EFF) program that concluded incompletely on June 30, 2023.
“The SBA provides some much-needed space to the Pakistani economy and will most certainly dampen near-term uncertainty,” Uzair Younus, director of the Pakistan Initiative at the Washington-based think tank, the Atlantic Council, told Arab News.
“However, the economy remains in a precarious situation and the government has to try and sort out some of the major issues in the energy sector, reduce distortion in the exchange rate market, and adopt a policy framework that doesn’t just burn the external financing the country has unlocked to achieve near-term political objectives.”
Economists say the deal will only offer Pakistan short-term respite.
“It will not solve long-term problems of paying on average around $25 billion per year for the next three years,” Dr. Ikram ul Haq, a Lahore-based senior economist, told Arab News.
The new deal came through after Finance Minister Ishaq Dar revised the federal budget the government passed on June 9, 2023. Dar increased Pakistan’s revenue collection target to Rs9.415 trillion ($33 billion) and put total spending at Rs14.480 trillion ($51 billion), increasing the petroleum levy from Rs50 to Rs60 per liter.
Authorities have taken Rs215 billion ($752 million) additional tax measures, cut Rs85 billion expenditures, hiked allocations under the social safety Benazir Income Support Program (BISP) by Rs16 billion, and withdrew amnesty on foreign exchange inflows, while the central bank jacked up policy rate by 1 percent to record high at 22 percent in an emergency meeting.
Economists said the high cost of the IMF bailout package would be borne by the masses rather than the elite.
“The key to success of SBA and next program will be structural reforms that is Waterloo of our elites,” Haq said, adding that “the real victims will be masses who will pay higher indirect taxes and bear high cost of utilities as has happened under previous program.”
For now, the SBA has had a positive impact on local and international investors’ confidence, with Pakistan’s sovereign dollar bond, maturing in 2024, gaining its value as fears of default subsided.
“Significant upward movement in bond prices demonstrates growing optimism among investors regarding Pakistan’s ability to address its economic challenges and implement necessary reforms under the IMF-supported program,” Tahir Abbas, head of research at Arif Habib Limited told Arab News.
Pakistani analysts and currency dealers expect that the country’s capital markets may rally from next week in response to positive the development, which would unlock further funding from bilateral and multilateral partners.
Malik Bostan, president of the Exchange Companies Association of Pakistan (ECAP) hoped the IMF deal would help Pakistan’s national currency regain its lost value.
“The rupee is expected to recover about Rs5 to Rs10 on the opening day of trading and will further strengthen by Rs10 to Rs20 with the inflow of funds,” Bostan told Arab News. “Those hoarding dollars for gains will not suffer losses if they don’t come out to sell.”
IMF’s $3 billion bailout deal will not solve Pakistan’s long-term problems, say experts
https://arab.news/y4ymw
IMF’s $3 billion bailout deal will not solve Pakistan’s long-term problems, say experts
- Economists say IMF agreement provides much-needed space to Pakistani economy, will dampen near-term uncertainty
- Pakistani rupee to recover by Rs10-20 against the US dollar when the IMF funds are received, says currency dealer
Pakistani PM speaks to Saudi, Qatari envoys as Iran fires missiles at US air base in Qatar
- Qatar called the attack a ‘flagrant violation’ of its sovereignty and said it reserved the right to respond
- In phone call with Saudi envoy, PM Shehbaz Sharif urges joint efforts to de-escalate tensions in the region
ISLAMABAD: Pakistan Prime Minister Shehbaz Sharif has expressed concern over Iran’s missile attack on a United States (US) military base in Qatar and called for efforts to restore peace in the region, Sharif’s office said on Monday, following his telephonic talk with Qatari and Saudi envoys to Islamabad.
Iran launched missile attacks Monday on US military bases in Qatar and Iraq in retaliation for the American bombing of its nuclear sites, state media said, amid escalating tensions in the volatile region.
Qatar said it had “successfully intercepted” missiles targeting the US base, and added it reserved the right to respond in accordance with international law. The US confirmed its air base was targeted by missile attack from Iran and said no casualties were reported.
Shortly after the attack, Sharif spoke with Qatar’s Ambassador to Islamabad Ali Mubarak Ali Essa Al-Khater and expressed solidarity with the Qatari government and people. He then spoke with Saudi Arabia’s Ambassador Nawaf bin Said-Al Malki.
“The Prime Minister urged that all efforts must be made to de-escalate tensions and restore peace in the region,” Sharif’s office said, following his conversation with the Saudi envoy.
“He said Pakistan would continue to work closely with the Kingdom of Saudi Arabia to intensify peace efforts.”
The Qatari and Saudi envoys thanked the prime minister for expressing solidarity and immediately reaching out to them after the development that could imperil peace and stability in the region, according to Sharif’s office.
Qatar earlier said it condemned the Iranian missile attack, calling it a “flagrant violation” of its sovereignty.
“We express the State of Qatar’s strong condemnation of the attack on Al-Udeid Air Base by the Iranian Revolutionary Guard Corps, and consider it a flagrant violation of the State of Qatar’s sovereignty and airspace, as well as of international law,” foreign ministry spokesman Majed Al-Ansari said in a statement.
The Al-Udeid air base is home to the US Combined Air Operations Center (CAOC), which provides command and control of air power across the region as well as the 379th Air Expeditionary Wing, the largest expeditionary wing in the world.
Iran’s retaliation came a day after the US launched a surprise attack Sunday morning on three of Iran’s nuclear sites, joining Israel in the biggest Western military action against the Islamic Republic since its 1979 revolution.
Just before the explosions, Iranian President Masoud Pezeshkian wrote on the social platform X: “We neither initiated the war nor seeking it. But we will not leave invasion to the great Iran without answer.”
PIA cancels flights to Qatar, Bahrain, Kuwait and UAE after Iran attacks on US bases
- Iran confirmed it had attacked US forces stationed at Qatar’s Al-Udeid air base
- The retaliation came a day after the US attacked three of Iranian nuclear facilities
KARACHI: The Pakistan International Airlines (PIA) has canceled its flights to Qatar, Bahrain, Kuwait and the United Arab Emirates (UAE), it said on Monday, shortly after Iran struck United States (US) bases in Qatar with missiles.
Iran confirmed it had attacked American forces stationed at Qatar’s Al-Udeid air base. A caption on the screen called it “a mighty and successful response by the armed forces of Iran to America’s aggression” as martial music played during announcement on Iranian state television.
Qatar said it “successfully intercepted” missiles targeting the US base, and added it reserved the right to respond directly and in accordance with international law following the strikes. The US confirmed its air base in Qatar was targeted by missile attack from Iran and said no casualties were reported.
PIA said it had limited its flight operations as a precautionary measure due to the ongoing situation in the Gulf region, adding that its reservation department had started transferring the bookings of passengers to other flights.
“PIA flights will be resumed after the situation returns to normal,” the airline said in a statement. “All passengers who were traveling on these flights are requested to get timely information about their flights from the PIA call center.”
A UAE government spokesperson said they were closely monitoring the regional developments and continuously assessing the situation.
Kuwait’s civil aviation body issued a statement, saying: “The country’s airspace has been temporarily closed as a precautionary measure, starting today and until further notice. The decision comes within the framework of maintaining the highest levels of safety and security in light of regional developments.”
The Al-Udeid air base is home to the US Combined Air Operations Center (CAOC), which provides command and control of air power across the region as well as the 379th Air Expeditionary Wing, the largest expeditionary wing in the world.
Iran’s retaliation came a day after the US launched a surprise attack Sunday morning on three of Iran’s nuclear sites, joining Israel in the biggest Western military action against the Islamic Republic since its 1979 revolution.
Just before the explosions, Iranian President Masoud Pezeshkian wrote on the social platform X: “We neither initiated the war nor seeking it. But we will not leave invasion to the great Iran without answer.”
Pakistan says holds ample petroleum reserves amid fears of Iran’s closure of Strait of Hormuz
- Iran’s parliament has approved cutting off the narrow shipping lane through which about 20 percent of global oil and gas passes
- State Minister Bilal Azhar Kayani says no cause of concern for Pakistanis, government prepared to address any uncertainties
ISLAMABAD: Pakistan has ample petroleum reserves and an uninterrupted supply chain, a junior minister said on Monday, amid fears that Iran may cut off a vital oil and gas shipping lane in retaliation for US strikes on its nuclear facilities.
Iran’s parliament has approved cutting off the Strait of Hormuz, a narrow shipping lane in the Arabian Gulf through which about 20 percent of global oil and gas passes. It’s now up to Iran’s national security council to decide whether to move forward with the idea, which could lead to a spike in the cost of goods and services worldwide.
The price of oil jumped 4 percent shortly after trading began on Sunday night, but it quickly pared back as the focus shifted from what the US military did to how Iran would react. Oil futures were flip-flopping in Monday morning trading between gains and losses. They still remain higher than they were before the fighting began a little more than a week ago.
Pakistan’s State Minister for Finance and Railway Bilal Azhar Kayani denied rumors about a shortage of petroleum products in the South Asian country, stressing that his government was closely monitoring developments following tensions between Iran, Israel and the US to ensure stability.
“The Oil and Gas Regulatory Authority (OGRA) has directed all oil marketing companies to strictly maintain mandatory reserve levels in light of current global conditions, mitigating potential risks,” Kayani was quoted as saying by Pakistan’s Press Information Department.
“There is no cause for concern as petroleum product inventories are sufficient and supply operations continue smoothly across the nation.”
The statement came hours after President Donald Trump called for the US and other oil-producing economies to pump more oil as the White House sharpened its warnings to Iran against closing the Strait of Hormuz.
Global markets were trying to ascertain what lays ahead after the US struck on Sunday key Iranian nuclear facilities with a barrage of 30,000-pound bunker busting bombs and Tomahawk missiles.
Pakistan lacks adequate resources to run its oil- and gas-powered plants and mainly sources its oil from Arab Gulf nations.
Kayani reassured citizens that the Prime Minister’s office, Ministry of Petroleum and the Ministry of Finance were continuously monitoring the situation.
“We are fully prepared to address any uncertainties,” he said, adding the government was committed to ensuring the country’s energy security.
Pakistan extends airspace closure for Indian aircraft until July 23
- The restriction was first imposed in Apr. as part of tit-for-tat measures by India and Pakistan after an attack in disputed Kashmir
- The attack, which India blamed on Pakistan without offering evidence, led to a four-day military conflict between the two countries in May
ISLAMABAD: Pakistan has extended for the second time its airspace ban on Indian aircraft until July 23, the Pakistan Airports Authority (PAA) said on Monday, citing continued tensions between the two countries.
The restriction was first imposed on Apr. 24 as part of a series of tit-for-tat measures announced by both India and Pakistan, days after an attack in Indian-administered Kashmir.
India blamed Pakistan for the assault that killed 26 tourists, Islamabad denied the allegation and called for a credible international probe into the incident. Both countries later engaged in a four-day military conflict in May.
“The ban on Indian aircraft from entering Pakistani airspace has been extended by one month,” the PAA said in a statement. “Pakistani airspace will remain closed to Indian aircraft until July 23, 2025.”
The ban applies to passenger and military aircraft operated by Indian airlines, according to the PAA. A Notice to Air Missions (NOTAM) has also been issued in this regard.
“Any aircraft registered in or leased by India would also be prohibited from using the Pakistani airspace,” the authority added.
Pakistan had previously extended the ban till June 24. It has forced Indian airlines to reroute their flights, resulting in increased fuel consumption, longer travel times and higher operational costs.
Air India, which operates numerous flights to Europe and North America, estimated in May that the airspace ban could lead to approximately $600 million in additional expenses over the course of a year and requested compensation from the Indian government.
Pakistan stocks, rupee plunge as investors react to US strikes on Iran
- Benchmark KSE-10 Index dropped more than 3 percent to the lowest in over six weeks
- Analysts say if there was no further escalation, value buying is expected to come through
KARACHI: Pakistan’s stocks and currency markets tumbled on Monday as investors reacted to the United States’ (US) foray into the Israel-Iran conflict, traders and analysts said.
The benchmark KSE-100 index dropped more than 3 percent to 116,167 points, the lowest in more than six weeks, while the rupee continued to weaken against the US dollar in the seventh consecutive session on Monday.
The index has plunged by nearly 5 percent since June 13 when Israel first hit Iranian military and nuclear targets in Natanz, Isfahan and Fordow, killing top generals and scientists among 78 people.
“Rising geopolitical tensions following a US strike on Iran shook investor confidence, causing the KSE-100 Index to drop by 3.2 percent,” Mohammad Waqas Ghani, head of research at JS Global Capital Ltd., told Arab News, adding that this was the fourth largest single-day decline in terms of points historically.
The attacks on Iran by the US, which followed Israeli strikes, have intensified the war and deepened geopolitical tensions in the Middle East, sending jitters to markets across the globe.
Monday’s 3.2 percent fall was the worst since May 8 when the index had plunged 5.9 percent day-on-day, according to Ghani.
“The spike in global oil prices has further intensified concerns about Pakistan’s external account vulnerabilities,” he added.
Cash-strapped Pakistan, which is trying to revive its debt-ridden economy with the help of International Monetary Fund’s $7 billion program, spent $17 billion on oil imports last year.
Raza Jafri, head of research at Intermarket Securities Ltd., attributed the day’s fall to redemptions at mutual funds and possible margin calls.
“Regional tensions are the main reason behind the weak sentiment,” he said, adding that if there was no further escalation, the value buying was expected to come through.
RUPEE DROP
The ongoing tensions have also impacted the Pakistani currency that lost another 0.06 percent as the greenback closed at Rs283.87, according to State Bank of Pakistan (SBP) data.
The rupee is constantly falling and has devalued 0.3 percent since the start of Iran-Israel conflict.
“The rupee is feeling the heat of this war, very negligibly though,” Zafar Paracha, secretary-general of the Exchange Companies Association of Pakistan, told Arab News.
“This stability in the exchange rate reflects the overall macroeconomic stability the country has achieved.”
