IMF approves $1.386b for Pakistan

WASHINGTON: The International Monetary Fund (IMF) has approved disbursement of $1.386 billion for Pakistan under the Rapid Financing Instrument to address the economic impact of the Covid-19. A statement issued after a meeting of the IMF's Executive Board on Thursday stated, "As the impact of the Covid-19 shock subsidies, the authorities' renewed commitment to implement the policies in the existing EFF will help support the recovery and strengthen resilience." With the near-term outlook deteriorating sharply, the authorities have swiftly put in place measures to contain the impact of the shock and support economic activity. Crucially, health spending has been increased and social support strengthened, it said. Hence the Executive Board of the International Monetary Fund (IMF) approved a purchase of Pakistan under the Rapid Financing Instrument (RFI) equivalent to SDR 1,015.5 million (US$ 1.386 billion, 50 percent of quota) to meet the urgent balance of payment needs stemming from the outbreak of the COVID-19 pandemic. "While uncertainty remains high, the near-term economic impact of COVID-19 is expected to be significant, giving rise to large fiscal and external financing needs," it said. The IMF support will help to provide a backstop against the decline in international reserves and provide financing to the budget for targeted and temporary spending increases aimed at containing the pandemic and mitigating its economic impact. Once the impact of the COVID-19 shock subsides, the IMF will resume discussions as part of the current EFF. Geoffrey Okamoto, First Deputy Managing Director and Acting Chair, said the outbreak of Covid-19 was having a significant impact on the Pakistani economy. The domestic containment measures, coupled with the global downturn, are severely affecting growth and straining external financing. This has created an urgent balance of payments need. “In this context of heightened uncertainty, IMF emergency financing under the Rapid Financing Instrument provides strong support to the authorities’ emergency policy response, preserving fiscal space for essential health spending, shoring up confidence, and catalyzing additional donor support," Okamoto said. He acknowledged that in response to the crisis, the government of Pakistan had taken swift action to halt the community spread of the virus and introduced an economic stimulus package aimed at accommodating the spending needed to tackle the health emergency and supporting economic activity. "Crucially, the authorities are increasing public health spending and strengthening social safety net programs to provide immediate relief to the most vulnerable," he said, adding that the State Bank of Pakistan had also adopted a timely set of measures, including a lowering of the policy rate and new refinancing facilities, to support liquidity and credit conditions and safeguard financial stability. “As the crisis abates, the authorities’ renewed commitment to the reforms in the existing Extended Fund Facility — in particular those related to fiscal consolidation strategy, energy sector, governance, and remaining AML/CFT deficiencies — will be crucial to entrench resilience, boost Pakistan’s growth potential, and deliver broad based benefits for all Pakistanis," he said, adding, “Expeditious donor support is needed to close the remaining balance of payments gap and ease the adjustment burden.”