Islamabad: Amid dwindling foreign reserves, the International Monetary Fund (IMF) on Tuesday announced the approval of USD 1.2 billion in loans on the condition that Pakistan should timely secure adequate assurances from friendly countries in order to tackle the widening financial gap.

The statement from IMF came two days after the Ministry of Finance and the State Bank of Pakistan (SBP) had claimed that they had met the financing requirements for the current fiscal year, the Express Tribune reported.

In a statement, Resident Representative of the IMF, Esther Perez, said "with the increase in PDL (Petroleum Development Levy) on July 31, the last prior action for the combined 7th and 8th review has been met".

"The board meeting is tentatively planned for late August once adequate financing assurances are confirmed," Esther Perez said.

As per the Express Tribune, the loan deal will pave the way for the release of nearly USD 1.2 billion against the original schedule of USD 2 billion.

Pakistan Finance Minister Miftah Ismail said last month that the gap was USD 4 billion against the estimated financing requirements of over USD 35 billion. However, Miftah Ismail said on Tuesday that "there is no financing gap and the USD 4 billion will actually end up in increasing the foreign exchange reserves by over USD 6 billion in this fiscal year". The minister also shared a plan for arranging these funds from Saudi Arabia, the United Arab Emirates and Qatar in the shape of oil and gas on deferred payments.

Notably, there is no progress being made which has held back the IMF from officially announcing the August 24 board meeting date. Furthermore, Islamabad will also have to convince three main bilateral creditors to assure the IMF that they are willing to chip in USD 4 billion in financings.

Esther remained short of giving a confirmed board meeting date due to what the IMF sees as a gap against Pakistan's gross external financing requirements.

According to the Express Tribune, Pakistan is trying to arrange USD 2 billion to USD 2.5 billion from the UAE through the emergency sale of two LNG-fired power plants and offloading stakes in its blue-chip companies whereas the ambassador of the UAE also showed interest in strengthening the bilateral relationship between both countries on economic fronts.

Amid the worsening crisis due to shrinking foreign reserves, Pakistan Army Chief General Qamar Javed Bajwa recently approached the US for help in securing an early disbursement of funds from the IMF to prevent the south Asian country from a looming economic disaster. In order to seek support on the economic front, Pakistan PM Shehbaz Sharif persuaded Bajwa to talk to US authorities and use his influence for the early disbursement of IMF funds.

The move by the Army Chief comes as Pakistan is gripped by a deep economic slump due to a shortage of foreign reserves.

Due to the existing elevated uncertainty in the global economy and financial markets, the IMF staff wants the Pakistani authorities to stand ready to take any additional measures necessary to meet the objectives of the programme.

On the fiscal side, there have been deviations from the policies agreed upon in the last review, partly reflecting the fuel and power subsidies announced by the authorities in February.

An extension of the EFF (Extended Fund Facility) until the end of June 2023 and an augmentation of access by SDR 720 million bringing the total access to about USD 7 billion will be considered by the IMF board in order to support program implementation and meet the higher financing needs in FY23, as well as catalyse additional financing.