Finance Minister reveals Pakistan’s strategy to meet external financing needs

WEB DESK: Pakistan is focusing on securing foreign investment and seeking extensions on existing loans to address its external financing needs, Finance Minister Muhammad Aurangzeb said on Friday.

This effort comes as the country prepares to implement a new $7 billion loan agreement with the International Monetary Fund (IMF).

The 37-month agreement with the IMF requires Pakistan to implement tough measures, including increasing taxes on agricultural income and raising electricity prices. These measures have raised concerns about their impact on the country’s poor and middle class, who are already facing inflation and higher living costs.

Pakistan has frequently relied on IMF programmes to avoid financial crises, sometimes nearing sovereign default. Historically, the country has turned to allies like the United Arab Emirates (UAE) and Saudi Arabia for financial support to meet IMF targets

According to Reuters, Aurangzeb emphasised that while external financing remains critical, the government is shifting its focus towards more sustainable solutions.

This includes attracting foreign direct investment and securing climate financing. “In the current situation, we expect loan rollovers to continue and have requested extensions for loan maturities,” Aurangzeb stated.

Support from long-time allies, including Saudi Arabia, the UAE, and China, along with IMF financing, has been crucial in helping Pakistan manage its external financing needs in the past.

The IMF’s new Extended Fund Facility programme is pending approval from its Executive Board and confirmation of necessary financing from Pakistan’s development and bilateral partners.

FinMin is optimistic about managing the external financing gap, describing it as “very manageable and very doable.”

He highlighted a strategic shift towards foreign direct investment, notably in the Reko Diq copper and gold mine in southern Pakistan. The government is working to identify attractive projects for investment from Saudi Arabia and the UAE, which have shown interest in substantial investments.

Aurangzeb stressed the importance of executing this plan within the next three years to avoid failing the current IMF programme. Pakistan, a frequent borrower from the IMF since 1958, is currently its fifth-largest debtor, with a debt of $6.28 billion as of July 11, 2024.

Additionally, Aurangzeb plans to discuss energy sector reforms with China during a visit by the end of July. China has pledged over $20 billion in energy projects in Pakistan.

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