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IMF admits ‘major developments’ ahead of bailout


May 25, 2019

KARACHI: The International Monetary Fund’s (IMF) potential bailout program would help Pakistan bring its economy back on inclusive and sustainable growth trajectory, its spokesperson said on Friday, as the country is setting the stage for tough structural reforms.

Director Jerry Rice of the IMF Communication Department said there have been major developments since it reached a staff-level agreement with Pakistan earlier this month on economic policies that could be supported by a 39-month extended fund arrangement for around six billion dollars. The agreement is subject to the timely implementation of prior actions, including market-determined exchange rate and tax revenue mobilisation, to bring about adjustment to stabilise the economy.

“On Pakistan, there have been major developments recently of course,” Rice said in an online media briefing.

The rupee has lost 3.74 percent against the dollar in the interbank market since last week as analysts found lack of the central bank’s support to rescue the battered rupee. The currency has cumulatively lost 37.45 percent since January 2018. The central bank termed the rupee devaluation as interplay of demand and supply factors. The central bank raised the interest rate earlier this week by 150 basis points to 10.75 percent in the monetary policy announcement for the next two months that is seen as a move to stabilise the volatile local currency

The government is also shifting focus from SBP’s borrowing to commercial banks to plug the fiscal account gap as a precondition of IMF’s loan. It also decided to slash primary fiscal deficit minus debt servicing to 0.6 percent of GDP in the next 2019/2020 fiscal year, “supported by tax policy revenue mobilisation measures to eliminate exemptions, curtail special treatments, and improve tax administration”.

It envisaged budget deficit to come down at 6 percent of GDP in FY2020 from 7.1 estimated for FY2019. The government revised up the budget deficit target to 7.1 percent of GDP from 6.1 for the outgoing fiscal year despite the fact that the deficit already touched 5 percent of GDP in the first three quarters of the current fiscal year. The target was quite contrary to the market’s projection of up to 7.6 percent of GDP till June-end 2019.

Rice said the IMF loan program is aimed at improving the country’s public finances, reducing public debt and, “helping Pakistan get back on the path to a sustainable, more inclusive growth”.

“We hope that the program can also create fiscal space for a substantial increase in social spending, to strengthen social protection, as well as infrastructure and other human capital development.”

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