Pakistan, IMF Inch Toward Deal

· Ishaq Dar, Chartered Accountant and Businessman brings in Life Saver Money

· Pakistan’s foreign-exchange reserves had dwindled to $2.9 billion last week, according to the central bank.

· Pakistan is considered to be among the emerging markets most at risk of defaulting.

· relatively little of Pakistan’s debt is owed to international bond markets.

· An agreement by the IMF to restart its bailout program would release a $1.1 billion payment the lender has been withholding

The country is at risk of defaulting with its foreign reserves dwindling to $2.9 billion

The International Monetary Fund said progress had been made in talks with Pakistan over restarting a stalled bailout, but the two sides hadn’t reached an agreement, which is seen as vital to preventing the country from defaulting.

The IMF ended a 10-day visit to the country for negotiations on Friday. The two sides said talks would continue virtually.

Pakistan’s foreign-exchange reserves had dwindled to $2.9 billion last week, according to the central bank. That is only enough to cover about two weeks of imports and a fraction of the amount the country needs to cover its debt repayments and trade deficit this year.

Pakistan is considered to be among the emerging markets most at risk of defaulting. Its finances have been under mounting pressure from a high debt burden and the increased prices of commodity imports. Devastating floods that inundated vast tracts of land last year only added to the country’s problems. However, compared with countries like Sri Lanka, which defaulted last year, relatively little of Pakistan’s debt is owed to international bond markets.

An agreement by the IMF to restart its bailout program would release a $1.1 billion payment the lender has been withholding and could unlock billions of dollars in loans and investments by Pakistan’s allies, as well as further lending by multilateral banks that is dependent on IMF oversight being in place.

Pakistan’s finance minister, Ishaq Dar, said he hoped to conclude the IMF agreement by the end of next week. He said Pakistan has agreed to the IMF’s conditions, including new taxes, and received a detailed draft of the deal from the lender on Friday, which will be picked over by the two sides in the remaining talks. The administration has agreed to levy an additional $630 million in taxes between now and June, and a further tax on gasoline, Mr. Dar said.

“It is in Pakistan’s interests to make reforms,” said Mr. Dar. “We cannot continue to allow the economy to bleed.”

The government of Prime Minister Shehbaz Sharif faces an election later this year and had been resisting unpopular measures demanded by the IMF. The government had sought alternatives, with Mr. Dar saying at one point that the country didn’t need the IMF. Eventually, the government decided it had no other choice because other potential lenders required the IMF program to be in place.

The lender said Friday that Pakistan needed to raise taxes and remove subsidies on services such as electricity. The IMF also said that it wants to see the Pakistan rupee float freely.

The currency has hit record lows against the dollar in recent days as the government allowed the market to determine its value, making its imports more expensive. Inflation, which the government said hit 28% in January, is expected to rise further.

The government put import controls in place in recent months due to the dwindling reserves, which brought some factories dependent on imports to a standstill. Some banks have prevented customers from withdrawing dollars from their accounts.

The IMF said during the recent talks that progress was made toward addressing the steps it is asking Pakistan to take. “The timely and decisive implementation of these policies along with resolute financial support from official partners are critical for Pakistan to successfully regain macroeconomic stability and advance its sustainable development,” the IMF said at the end of the visit.

Pakistan faces a heavy burden of loan repayments for the next few years, amounting to tens of billions of dollars. The country will likely need to renegotiate the debt, including rescheduling and forgiveness of loans, analysts say.

Around a third of the country’s external debt is owed to China. Pakistan was one of the largest recipients of loans under Beijing’s Belt and Road Initiative, a massive international lending effort for infrastructure projects. Beijing hasn’t indicated whether it will be willing to accept write-downs on its loans.

Pakistan’s political turmoil contributed to its strained relations with the IMF. Two successive governments, with precarious holds on power, have been concerned about the impact of the lender’s conditions on public support.

The IMF initially put its bailout program on hold early last year after the country’s then-prime minister, Imran Khan, adopted a fuel subsidy without the agreement of the lender. Mr. Khan was ousted as prime minister in April. The new government, led by Mr. Sharif, agreed to the IMF’s terms weeks after coming into power, but then took some steps, including intervening to strengthen the rupee, that went against the lender’s conditions.

A final IMF agreement should trigger billions of dollars in loans from Pakistan’s allies, such as Saudi Arabia, United Arab Emirates and China. Qatar, Saudi Arabia and U.A.E. have said that they are considering buying government-owned enterprises in Pakistan, in addition to providing loans. Among the most likely acquisitions are government-owned power plants, airports and companies in the oil and gas sector.