IMF says discussions with Pakistan remain ‘fluid’

KARACHI: The International Monetary Fund (IMF) has hinted at a possibility of renewing conditions with regard to the $6 billion loan program for Pakistan in the wake of the COVID-19 shock to Pakistan’s economy.

IMF Communication Department Director Gerry Rice said technical discussions on the extended fund facility (EFF) with the Pakistani authorities continue.

“They (discussions) remain fluid with a view to bringing that second review of that program, that extended fund facility, to a positive conclusion, as soon as possible,” Rice said in an online press briefing on Thursday.

“We’re working with the authorities, constructively, to ensure that that can be brought to a positive conclusion, as soon as possible, while taking into account the new conditions that we’re facing in Pakistan, and to ensure the program delivers on its objectives.”

In late March, IMF paused discussions with Pakistan on the second review of the three-year extended fund facility program following the coronavirus outbreak. That review’s conclusion is imperative for the country to bag the third tranche of around $450 million under the facility.

However, the Fund approved $1.4 billion under the rapid financing instrument to help the economy weather the coronavirus storm.

The country received $991 million as the first installment soon after the EFF approval in July last year and following thickened uncertainty about the agreement surrounding in the air for a long time. The second tranche amounted to $452 million.

IMF previously said the rapid financing is not a replacement for the EFF. Nonetheless, the Fund remains uncertain about the timeline of restoring the inflows under the EFF.

“Strong policies and reforms remain critical to increase resilience and boost Pakistan’s growth potential in order to deliver benefits for all Pakistanis, especially the most vulnerable,” IMF said in a statement in April.

Market-based exchange rate, cost-recovery in the energy sectors, and tax reforms are broadly covering the conditions associated with the IMF’s loan program.

Before the virus outbreak, Pakistan’s economy was struggling to recover from faltering growth that slipped to 3.3 percent last fiscal year from 5.5 percent a year earlier. It was projected to contract 1.5 percent this fiscal year, according to the IMF.

“Pakistan has been facing long-standing economic challenges, including low revenue mobilisation, high fiscal deficit and indebtedness, low spending on education, health, and social programs, and a weak external position,” said the IMF. “This reflects the legacy of uneven and procyclical economic policies in recent years aiming to boost growth, but at the expense of rising vulnerabilities and lingering structural and institutional weaknesses.”