IMF to tide Pakistan over COVID-19 shocks

ISLAMABAD: International Monetary Fund (IMF) has assured Pakistan of its support to weather an unprecedented economic shock from the pandemic as the country is about to miss almost all the economic targets during the current fiscal year.

“IMF would continue to cooperate with Pakistan for sustainable economic growth in future,” the Fund’s Resident Representative in Pakistan Teresa Daban Sanchez said in a meeting on Thursday with Minister for Economic Affairs Khusro Bakhtyar.

Sanchez agreed with the minister about a need of cooperation to overcome challenges emerging out of the novel coronavirus.

IMF already said the severity of the shock and the uncertainty about the outlook make it difficult to recalibrate the existing extended fund facility (EFF) to ensure that it remains on track to meet its objectives.

Washington-based lender last year agreed to lend $6 billion under a three-year EFF to help Pakistan avert balance of payment crisis. In pre-coronavirus era, the country showed signs of economic stabilisation, transition to a market-based exchange rate system, significant reduction in the current account deficit, a primary balance surplus, higher tax and non-tax revenue collection and increased social spending.

However, the near-term macroeconomic outlook has drastically deteriorated following the COVID-19 outbreak, IMF said, underscoring new urgent external financing needs in FY2020.

Though IMF approved $1.4 billion of rapid financing to meet Pakistan’s urgent balance of payment needs and free up its resources to spend on countervailing measures for the virus, it has yet to complete the second review of its EFF bailout package that would entail release of the third loan tranche.

Bakhtyar appreciated the IMF’s support of $1.4 billion under the rapid financing instrument to address the socioeconomic impact of the COVID-19 outbreak.

“Government of Pakistan and IMF are working together for much needed structural reforms for fiscal consolidation and long-term sustainable growth,” a statement quoted him as saying. He hoped that IMF and Pakistan would collaborate to mitigate the impact of the pandemic on regular basis and would address the emerging situation accordingly while keeping focus on social safety nets for vulnerable section of the society to navigate through crucial time of the pandemic.

IMF said Pakistan is facing unprecedented health and economic shocks from the rapid propagation of the Covid-19 outbreak.

“Growth is expected to contract sharply by -1.5 percent in FY 2020, as the economy is buffeted by demand and supply shocks. Exports and remittances are expected to decline sharply, which together with a temporary loss of market access create an urgent balance of payments need,” it said in a report. “In addition, public finances are expected to come under significant pressure from the sudden increase in health- and mitigation-related expenditures as well as the decline in tax revenues.”