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Pakistan’s default odds rise as IMF sours on bailout: Bloomberg

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  • Report says without IMF programme, options for fresh funding will likely be “very limited.”
  • “With forex reserves likely below $4bn, default seems highly likely,” reports mentions.
  • Negotiations with IMF on any new bailout aren’t likely to start until after elections in October.

KARACHI: The International Monetary Fund’s (IMF) criticism of Pakistan’s latest budget suggests chances are rising that the lender will opt not to deliver long-awaited aid before its bailout programme finishes at the end of June, Bloomberg reported.

“This would cause a severe dollar shortage in the first half of the fiscal year that starts in July, and possibly for longer — significantly raising the odds of default, Bloomberg economist Ankur Shukla said in the report, Pakistan Insight.

“It would also raise the prospect of much lower growth, and higher inflation and interest rates than we currently anticipate in fiscal 2024.”

The IMF criticised the budget for not taking enough steps to broaden the tax base and for including a tax amnesty.

The country’s foreign currency reserves currently stand at $4 billion. With at least around $900 million in debt that must be repaid this month, the reserves will fall by June-end unless the IMF aid comes.

Between July-December, Pakistan must repay an additional $4 billion, which cannot be rolled over. “With foreign exchange reserves likely below $4 billion at the start of fiscal 2024, the default seems highly likely,” the report said.

“Without any IMF programme, the options for fresh external funding will likely be very limited.”

Pakistan’s default odds rise as IMF sours on bailout: Bloomberg

It said that negotiations with the IMF on any new bailout aren’t likely to start until after elections in October. “Reaching an agreement will take time. Any actual aid disbursement from the IMF under a new programme will not happen until December.”

In the meantime, the country will need to conserve dollars by limiting import purchases — and keeping a current account balance in surplus— to have any hope of being able to meet its obligations.

It will also need to seek assistance from friendly nations to avert a default in the first half of fiscal 2024.

The report said Pakistan’s economy will likely be hit hard if the IMF doesn’t deliver aid by June-end.

The authorities will have to keep import restrictions in place. The State Bank of Pakistan will also likely raise rates above the current level of 21% to further curb demand for imports and conserve foreign exchange reserves, it added.

“Our base case currently is that the SBP will likely remain on hold through December (but that assumed the IMF aid coming in by June-end).”

Continued import restrictions and a weaker rupee would lead to higher inflation in fiscal 2024 than currently anticipated.

“We currently expect inflation to average 22%. Higher borrowing costs and restrictions on imports of raw materials would hit production further. Higher inflation would damp consumption,” it added.

The report said if IMF aid doesn’t come this month, the growth will be much weaker in fiscal 2024 than the current forecast of 2.5%.

“Higher rates will also increase the government’s debt servicing costs. The government currently plans to spend half of the fiscal 2024 budget on debt servicing.”

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April FDI in Pakistan increased to $358.8 million, according to SBP

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The inflow for April was $358.8 million, up 177% from $132 million in April FY23. Still, that was 39% more than the $258 million from March.

China was the largest investor, with $439.3 million in FDI from the nation between July and April of FY24—the greatest amount—as opposed to $604 million during the same period of FY23. In April, China accounted for $177 million of the total investment.

With $51.93 and 51.89 million invested in Pakistan, the United Arab Emirates and Canada came in second and third, respectively.

The power industry was the main draw for foreign investors in FY24, which ran from July to April. This period’s FDI in the power industry was $637.5 million, compared to $776.2 million the previous year. From $338 million to $460 million this year, Hydel Power garnered more attention.

Continue reading: In FY23–24, Pakistan’s per capita income increased to $1680.

According to a separate data released on Wednesday, Pakistanis’ per capita income increased to $1680 in FY2023–2024.

The size of the national economy grew from $341 billion to $375 billion in the current fiscal year, according to figures made public by PBS.

Throughout this fiscal year, Pakistanis’ yearly per capita income increased by Rs 90,534; the monthly rise was Rs 7,544.

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OGRA forbids the purchase or sale of inferior LPG cylinders.

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The 313 LPG marketing and 19 cylinder-producing companies received notices from the OGRA, which described the act of refilling inferior LPGO cylinders as harmful.

Avoid supplying LPG to unlicensed distributors, the OGRA has cautioned LPG marketing companies. Only approved distributors will be able to sell and buy LPG going forward, per the notification, which states that new SOPs have been developed for the LPG industry.

Additionally, the warning said that the decision was made in an effort to preserve both lives and the business in response to an increase in cylinder blast occurrences.

Price reductions of Rs 20 per kilogramme for liquefied petroleum gas (LPG) were implemented in Quetta on May 3.

There is a reduction of Rs 20 on LPG prices, which means that the price per kilogramme drops from Rs 280 to Rs 260.

The costs of LPG were reduced by Rs 20 per kilogramme earlier, bringing the total decrease to Rs 40 per kilogramme over a few weeks. This is something worth noticing.

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PIA announces a significant student discount.

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According to an airline spokesman, the national flag carrier has recently raised the baggage allowance to 60 kg.

Currently, PIA flies one flight per week on Sundays between Islamabad and Beijing.

The discount may be useful to students who intend to spend their summer vacations in Pakistan or who wish to return home after earning their degrees.

Before, students who wanted to visit China could now receive a 27% reduction on their fares through PIA.

On Eid ul Fitr, the national flag airline also reduced the cost of domestic flights by 20% for both economy and executive economy classes.

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