Pak, Sri Lanka close in on IMF deals after raising taxes to boost economies

Pakistan and Sri Lanka are getting close to securing bailouts from the International Monetary Fund after taking a series of steps including tax increases to boost their beleaguered economies.
 

Pakistan has taken all the measures needed to unfreeze a $6.5 billion credit line and expects to clinch the deal “any day now,” Commerce Minister Syed Naveed Qamar said in an interview in Washington Tuesday. Sri Lanka has completed a list of 15 tasks assigned by the lender to clinch a $2.9 billion loan program, according to President Ranil Wickremesinghe.

The IMF funds are crucial to stabilizing Pakistan and Sri Lanka where a funding crunch, supply shortages and surging import prices are threatening to destabilize their economies. Pakistan faces an additional threat of a debt default.

The IMF agreement will give investors and creditors confidence that “Pakistan’s economy is now stabilizing, has taken all the right steps, so in that sense their money will remain protected,” Qamar said. “The IMF program is the beginning, not the culmination, of all other monies flowing in.”

Pakistan’s dollar bonds due April 2031 fell to 41.25 cents on the dollar, extending its decline for a third day. Sri Lankan notes due March 2030 were little changed at 34.80 cents on the dollar.

Sri Lanka’s reserves are insufficient to repay its foreign debt obligations in the first half of this year. Pakistan’s reserves have dwindled to levels that can support less than a month of imports. Fitch Ratings cut Pakistan’s credit score deeper into junk territory this month, the second time since October.

Reserve Boost

A pickup in imports once the nation boosts its reserves will also benefit exports, the minister said. Limited reserves restricted Pakistan’s ability to fund imports, including intermediary goods, and stranded thousands of containers of supplies at ports. Pakistan authorities have taken steps including increasing taxes, cutting subsidies and devaluing its currency to meet IMF conditions.

Severe supply shortages stoked inflation to a 48-year high in January and forced plant shutdowns, putting tens of thousands of jobs at risk. 

Meanwhile, Sri Lanka has informed the IMF on its progress in meeting the conditions on Feb. 15, the president’s office said in a statement. The cabinet of ministers this month cleared a bill for a monetary law giving more independence to the central bank, and increased electricity tariffs for the second time in six months.