$27bn re-profiling needed to secure IMF bailout

• Pakistan asks China, Saudi Arabia, UAE to roll over $12bn annual debt portfolio by three to five years
• Aurangzeb insists Pakistan working with both US, China
• Says efforts to restructure public sector portfolios starting with five ministries
• Acknowledges citizens’ difficulties, stresses need for tough measures given ‘loss of fiscal space’
ISLAMABAD: Pakistan has sought the re-profiling of more than $27 billion in debt and liabilities with friendly nations — China, Saudi Arabia and the UAE — to secure a 37-month IMF bailout package and ease energy sector foreign exchange outflows and consumer tariffs.
Finance Minister Muhammad Aurangzeb on Sunday said Islamabad had already asked the friendly bilateral trio of lenders to roll over its more than $12bn annual debt portfolio by three to five years to secure the IMF board’s approval for a $7bn economic bailout by next month.
This is on top of Islamabad’s request to Beijing to convert imported coal-based projects to local coal and re-profile more than $15bn in energy sector liabilities to create fiscal space amid difficulties in timely repayments.
Pakistan has a peculiar financial arran­gement with these three countries in the shape of commercial loans and SAFE deposits that are rolled over every year and form major part of the IMF programme in terms of external financing needs.
Pakistan has now requested the maturity period of these loans — $5bn from China, $4bn from Saudi Arabia, and $3bn from the UAE — to be extended to at least three years, offering greater predictability under the IMF programme.
Speaking at a news conference after returning from China, Mr Aurangzeb said the Chinese side acknowledged Pakistan’s foreign exchange difficulties and wanted to help in new business ventures and the re-profiling of energy sector payments besides playing its role in supporting Pakistan’s case at the IMF board as one of the major stakeholders.
He said the process of debt and equity rescheduling had been started and would now go to the working groups with relevant financial institutions and sponsors of Chinese projects for which Pakistan was hiring local Chinese consultants.
“Between now and the IMF board meeting (on the 37-month bailout package), we have to ensure confirmation of external financing” from friendly bilateral partners, the minister said. However, he explained that the Chinese energy sector debt re-profiling had nothing to do with the IMF programme as other prior actions had been completed and structural benchmarks were under implementation.
Mr Aurangzeb said he was in contact with the Chinese, Saudi and UAE finance ministers for extension in debt rollover for three years and they had assured their support that would place Pakistan at a very comfortable position in terms of external financing gap.
“I can assure you we are at a very good place on external financing for the next three years, including year-one, year-two and year-three,” he said.
No incremental financing
Without going into details, he said the IMF had worked out a financing needs assessment for three years that also included its own $7bn Extended Fund Faci­lity. After rollovers from friendly countries, the remaining external financing gap would become very manageable, he said.
Responding to a question, the minister said Pakistan was not seeking any incremental financing from friendly countries. “The only incremental thing is an extension in maturity period for three years instead of yearly rollovers,” he said.
Mr Aurangzeb said that the issue of energy sector repayments was initially taken up by Prime Minister Shehbaz Sharif with President Xi Jinping of Chian during his visit to Beijing and followed it up with formal letters to Prime Minister Li Keqiang.
As part of the process, Finance Minister Auran­gzeb, along with Power Minister Awais Leghari, held meetings with Chin­ese finance and energy ministers and the governor of the Chinese central bank to understand the context of Pakistan’s ability to pay, economic stability and relief in energy tariffs.
He said the two sides discussed conversions of Chinese power projects to local coal and how to take their technical, logistical and financial parameters forward.
Secondly, financial re-profiling would also need to be discussed with banks and project sponsors one by one. “They have recognised this and the process would now move forward on that basis,” Mr Aurangzeb said.
He said the reprofiling of CPEC debt was also discussed the governor of Chinese central bank and “we would need to go for project by project given the CPEC structure”.
“Very positive discussions have taken place from my perspective,” he said, adding the debt of Chinese independent power producers (IPPs) was manageable as their legal payments were being made, but the issue pertained to return on equity to project sponsors mainly because of foreign exchange which required to be rescheduled to create fiscal space.
The minister, however, clarified that Pakistan was seeking the reprofiling of payments and not “haircuts” — debt waiver or interest rate cuts.
He stressed the importance of long-term structural solutions for economic challenges. He acknowledged the difficulties faced by all segments of society due to high interest rates, energy prices, currency devaluation and increased tax burdens but emphasised the necessity of tough measures given the loss of fiscal space.
“We have no more choice of doing what we have been doing in the past for short-term relief and objectives.”
Working with US, China
Responding to a question, the finance minister said Pakistan has moved forward with both the US and China, aiming to advance the phase two of CPEC under which Chinese business were to relocate to Pakistan, while the US was Pakistan’s largest trading partner and the European Union had provided the GSP+ status to help prop up Islamabad’s exports.
He said that during his visit to China, he also engaged with his counterpart and the central bank chief to explore opportunities in the Chinese capital market — the second largest in the world — through Panda bonds. He said Pakistan would register for the $1bn equivalent of Panda bonds but tap around the equivalent of $150-200 million.
Mr Aurangzeb said industrialists should also acknowledge that Paki­stan’s economy was such that it immediately ran into a foreign exchange crisis as it tried faster economic growth, and hence, it would be prudent not to fall again into the import restriction regime that could be more painful.
He hoped the stability in foreign exchange and macroeconomic indicators would soon improve Paki­stan’s credit rating and gradually move towards export-led growth, FDI creating exports and return to the international capital markets.
Past efforts for public sector rightsizing did not bear fruit because of large portfolios, the minister said, adding that he was pushing for “bite-size” restructuring by taking only five shortlisted ministries — Kashmir Affairs and Gilgit-Baltistan, Safron, Industries and Production, IT and Telecom, and Health — in the first instance while protecting the rights of workers and asset values.
Published in Dawn, July 29th, 2024