IMF likely to delay release of 3rd tranche

ISLAMABAD: The International Monetary Fund (IMF) might delay completion of second review and release of third tranche worth $450 million for Pakistan in the aftermath of outbreak of coronavirus and surfacing of new realities on macroeconomic front, The News has learnt.

Under the existing arrangement of $6 billion Extended Fund Facility (EFF), the approval of third tranche might be delayed for some time because all macroeconomic targets have shaken, arising out requirement to re-adjust macroeconomic targets. However, the IMF’s management has agreed to consider Pakistan’s separate request of providing $1.4 billion under Rapid Finance Instrument (RFI) for combating against COVID-19 pandemic.

Both Pakistan and the IMF officials are tight lipped as no one was ready to talk on this subject publicly. It indicates that different proposal were under consideration but nothing is yet finalised for moving ahead.

Top sources having knowledge about working of Breton Wood Institutions (WBIs) such as the IMF and World Bank, told this scribe that there were two possibilities under consideration; one was to complete the second review after the next budget for 2020-21 and second was to club second and third reviews of Extended Fund Facility (EFF) for providing third and fourth tranches together probably in July 2020.

It is not yet known what will be the final decision of the IMF’s top management but they will be taken ultimate decision after holding consultation with Pakistani side, said the official sources.

Anyway, the next IMF review mission was expected to undertake round of talks for third review by late April or early May 2020 for revising all major targets in line with new emerging realities on the economic front.

When the IMF’s Resident Chief in Pakistan Teresa Daban Sanchez was contacted for inquiring about approval of $1.4 billion under RFI, she replied “it is not yet announced by the IMF’s Board of Directors. The IMF team is working hard for prompt approval and disbursement of RFI. Hopefully, it will be done by mid April” she added. However, the sources said that Pakistan would be provided substantial amount from the IMF so it would not matter if the completion of second review got delayed.

It is relevant to mention here that the IMF had announced on February 27, 2020 that both the Fund staff and Pakistani side had struck staff level agreement for second review of the EFF.

Ernesto Ramirez Rigo, Mission Chief for Pakistan, had stated on the occasion that "Following discussions between IMF staff and the Pakistani authorities in Islamabad from February 3-13, which continued from the IMF headquarters in recent days, IMF staff and the Pakistani authorities reached a staff-level agreement on policies and reforms needed to complete the second review of the authorities reform programme supported under the EFF.

The agreement is subject to approval by the IMF management and consideration by the Executive Board, which is expected in early April. Completion of the review will enable disbursement of SDR 328 million (around $450 million)".

So far IMF’s Executive Board had not yet announced any date for consideration of second review and releasing of third tranche under $6 billion EFF for Pakistan, indicating clearly that things got delayed on this front.

However, on the request for $1.4 billion assistance made by Advisor to PM on Finance Dr Abdul Hafeez Shaikh, the IMF’s MD Kristalina Georgieva stated on March 26 that “The authorities have continued their reform efforts to address Pakistan’s economic challenges, but progress is being threatened by the devastating effects of the COVID-19 outbreak and the deterioration in global economic and financial conditions. Prime Minister Khan and his government have swiftly approved an economic stimulus package aimed at containing the spread of the virus and providing support to affected families and businesses.

Similarly, the State Bank of Pakistan (SBP) has adopted a timely set of measures, including a lowering of the policy rate, new refinancing facilities to support the flow of credit, and temporary regulatory relief measures. “To support these efforts and ensure prompt and adequate relief to the people and the economy, the government of Pakistan has requested financial assistance under the Fund’s Rapid Financing Instrument (RFI). This emergency financing will allow the government to address additional and urgent balance of payments needs and support policies that would make it possible to direct funds swiftly to Pakistan’s most affected sectors, including social protection, daily wage earners, and the healthcare system. Our team is working expeditiously to respond to this request so that a proposal can be considered by the IMF’s Executive Board as soon as possible.

The Fund stands ready to continue to support the authorities’ efforts to implement much-needed economic and structural reforms aimed at fostering strong and sustainable growth”, it concluded.