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June 23, 2021

IMF issues

 
June 23, 2021

The differences between the IMF and Pakistan’s economic management team have been lingering for quite a while now. A sign of this prolonged disagreement is the delay in the completion of the sixth review under the six-billion-dollar Extended Fund Facility (EFF). Both parties are unlikely to hold discussions for the review during the coming weeks. A major bone of contention is the pace of implementation of the IMF conditions that Pakistan – at least at the moment – is unable and unwilling to fully comply with. Since the review has been postponed till September, both parties will be measuring the pace of success after three months. By that time, if the IMF is satisfied that Pakistan has implemented the conditions apace, the programme will move forward. Similarly, some agreed structural benchmarks also need enforcement by that time.

The IMF had expected Pakistan to abide by these conditions by the end of the outgoing fiscal year. The fact is that these IMF conditions are harsh and Pakistan has a right to keep its people’s interest first, but at stake is not only the next tranche of the EFF, but two other programme loans amounting to over half a billion dollars as well. These loans from the ADB are aimed at helping the energy sector in the country and also bringing capital-sector reforms to stabilize the capital market in Pakistan. The ADB requires a letter of comfort from the IMF to materialize these loans. Then there is also the question of another loan programme from the World Bank amounting to $800 million. The World Bank is apparently happy at the current macroeconomic framework of Pakistan which has shown some stability lately. Still, there are certain conditions that Pakistan must fulfil before any new disbursements from the ADB, IMF, or World Bank take place. In this scenario, the approval of the Council of Common Interests (CCI) becomes significant. In the absence of such approval, the international financial institutions become reluctant to grant loans. They fear that any change in government may result in alterations of policies, but once the CCI approval is there, such alterations become harder for any new setup to change. Now, the sixth and seventh reviews with the IMF are likely to proceed in September and before that the government of Pakistan must set its economic house in order.

For a constructive partnership, both parties need to take each other’s concerns seriously. The IMF should not force Pakistan to implement conditions that are likely to result in more hardships for the people of Pakistan. The Covid-19 pandemic has already battered the economy and, despite some recent improvements in indicators, the economy is not stable and sustainable in the long run. Pakistan must keep striving to achieve the objective of debt sustainability, which the country cannot obtain without strong growth potential. There are at least a couple of areas in which the government needs to proceed. First is the implementation of policies that bring sustainability, and second is the structural reform for the benefit of the people which must give preference to social spending enhancement.