IMF engaged with Pakistan to conclude $6b program review

KARACHI: Pakistan and the International Monetary Fund (IMF) are ‘closely engaged’ to bring the second review of a $6 billion three-year Extended Fund Facility (EFF) to a positive conclusion, a top IMF official said on Saturday. Pakistan signed the $6 billion three-year EFF with the IMF last year and has so far secured $1.44 billion under the loan program since July 2019. The country was expecting another tranche of about $450 million in March this year, which has been put on hold until after the second review. “The IMF team and Pakistani authorities remain closely engaged with a view to bring the second review of the EFF to a positive conclusion,” Teresa Dabán Sanchez, Resident Representative of IMF in Pakistan, was quoted as saying by the international media on Saturday. In April 2020, the country received $1.39 billion from the IMF under a Rapid Financing Instrument (RFI) to meet its balance of payment needs stemming from the coronavirus outbreak. In June this year, Prime Minister’s Special Adviser on Finance Dr. Abdul Hafeez Shaikh said Pakistan would seek to factor in the economic impact of the coronavirus crisis into the targets of the IMF bailout programme. He denied the country was planning to renegotiate the $6 billion loan programme. Last month, Governor State Bank of Pakistan Dr. Reza Baqir also confirmed that the IMF and Pakistan were engaged in a ‘technical discussion’. People familiar with the development say the tax rationalization and energy prices’ surge for elimination of circular debt and new legislations are the key demands of IMF for the release of the next tranche. “The funds call for tax rationalization... and power tariff hike,” said Muzamil Aslam, a senior economist. “The government is under severe pressure to not raise power tariff due to prevailing inflation,” he added. Dr. Khaqan Najeeb, who has served as adviser to the Ministry of Finance, said revival of the IMF programme would be helpful to strengthen the country’s balance of payments situation and for building foreign exchange reserves. “It will ensure other creditors continue disbursements and Pakistan’s international ranking does not decline,” he said.

Dr. Najeeb said the conditions of energy pricing, revenue raising and new legislation needed to be negotiated in light of low growth forecasts.

“Even pre-COVID-19, excessive monetary tightening and increased cost of doing business had curtailed industrial growth,” he said.

Economists say in the medium term the program’s revival would address structural issues which can put the economy on a path of sustainable high growth.

“Smart solutions can help ease the burden of adjustment on both people and industry,” Dr. Najeeb said.

“Economic planning has to go beyond IMF assisted stabilization and tackle bottlenecks of businesses to ensure the real economy gets going,” he added.