Pakistan Requests $1 Billion in IMF Climate Money, Sees Reserves Rising

WASHINGTON (Reuters) – Pakistan is targeting about $1 billion in a formal funding request from the IMF mechanism that helps low- and middle-income countries mitigate climate risk, its finance minister told Reuters.

“We have formally requested to be considered for this facility,” Finance Minister Muhammad Aurangzeb said in an interview on the sidelines of the IMF/World Bank fall meetings in Washington.

The International Monetary Fund had already agreed a $7 billion bailout for Pakistan, but has additional funding available through its Resilience and Sustainability Fund (RST).

The RST, created in 2022, provides long-term concessional funds for climate-related expenses such as adaptation and transition to cleaner energy.

“We think we are a good candidate to be considered for a facility like this,” Aurangzeb said, adding that they aim to complete the application in the coming months.

The South Asian nation is one of the countries most vulnerable to climate change, according to the Global Climate Risk Index.

The 2022 floods, which scientists say were worsened by global warming, affected at least 33 million people and killed more than 1,700. The country’s economic difficulties and high debt burden hampered its ability to respond to the disaster.

Pakistan is also in talks with the Asian Infrastructure Investment Bank for a credit enhancement for a planned Panda bond, Aurangzeb said. The target is an initial issuance of US$200-250 million by the end of June.

A Panda bond would be Pakistan’s first foray into China’s capital markets. Aurangzeb said they were talking to “a few other institutions” besides AIIB for a credit boost.

Credit enhancements provide some level of security for bonds, which can increase their rating, attract more investors, and thus reduce the government’s financing costs.

Issuance in the world’s “second largest and second deepest” capital market was, Aurangzeb said, the main objective, not a specific issue size.

“From our point of view, this is a diversification of the funding base,” Aurangzeb said. “Even though the inaugural edition is not significant in size, it is important for us that we print it and, of course, we can keep it available.”

Aurangzeb said Pakistan had engaged with Middle Eastern banks regarding commercial loans, and one of them had put forward “a relatively significant proposal”.

Pakistan’s foreign exchange reserves are expected to reach $13 billion by the end of March, Aurangzeb said, which would help with commercial lending and, potentially, its credit rating.

Foreign exchange reserves reached $11.04 billion in the week ended October 18, the central bank said.

Moody’s raised Pakistan’s ratings to ‘Caa2’ in August, citing improving macroeconomic conditions, and Fitch raised its rating to CCC+ in July, following IMF staff-level agreement. But both ratings are subinvestment grade. REUTERS