IMF review

The IMF is reported to have resumed discussions with Pakistan to complete the second review of the country’s extended fund facility (EFF) programme. This review was deferred last month as the Covid-19 pandemic reached Pakistan and with it new challenges for the economy surfaced. The six-billion-dollar deal with the IMF gave the PTI-led government some fiscal space so that the immediate danger of an economic meltdown could be avoided. The agreement covers a period of over three years and during this time the balance of payment crisis could be averted till the time Pakistan’s economy is stabilized, if ever. In the past two years we have seen unprecedented levels of high inflation, reduced GDP growth rates, and a shrinking economy with over 50 billion dollars’ reduction in the volume of GDP. All this was compounded by declining foreign exchange reserves barely enough to cover two months’ import bills.

Though the IMF had reached a staff-level agreement with Pakistan in February 2020, the policies and reforms needed to complete the second review were still under discussion when the coronavirus struck. That staff-level agreement was subject to approval by the IMF management and consideration by the executive board. This step was supposed to be complete in April but again due to unexpected lockdowns and other emergency measures, the process could not reach its logical conclusion. The review would have enabled Pakistan to receive another 450 million dollars in the next tranche of the extended fund facility. Before that review in February, Pakistan had already received two tranches under the loan programme but the third one was put on hold after the virus crisis. Despite this delay, the EFF is in place while other rapid financing instruments are being negotiated. These instruments would help the country in combating Covid-19. This rapid financing amounts to another 1.4 billion dollars in emergency response.

For Pakistan the options are limited and the corona crisis is not going to last forever, nor will there be repeated emergency help coming from the G20 or other multilateral organizations such as the IMF or the World Bank. The most important thing for Pakistan is to achieve a certain creditworthiness and that can be done only if we manage to repay debt without fail. The G20 debt suspension is temporary and even in that, details are still to be worked out. We cannot count on the largesse of rich countries beyond the pandemic. Pakistan needs an efficient economic team that the present government appears to be lacking. There is no federal minister for finance and the FBR has seen multiple changes in a short period. The State Bank of Pakistan itself has been struggling with the monetary policy and interest rates. All this calls for a thorough review of the entire economic management in the country; for the time being the government seems to have left it to the side.