Budgetary support: IMF to allow Pakistan to utilise $2.78 billion Covid support fund

ISLAMABAD: The International Monetary Fund (IMF) has agreed to allow Pakistan to utilise $2.78 billion, equivalent to Rs500 billion, for meeting budgetary side requirements, which were provided by the Fund for combating the COVID-19 pandemic.

The IMF usually provides Balance of Payment (BoP) support to recipient countries but in special cases it allows countries to utilize its resources for financing budgetary requirements as well. Upon the request made by Pakistan, the IMF has agreed in principle, and an announcement to this effect is expected along with the approval of the $1 billion tranche under the pending sixth review of Extended Fund Facility (EFF). The commercial banks are eyeing to provide T-bills financing at higher rates, so the provision of budgetary support of Rs500 billion will spoil dreams of earning lofty profits.

“The Ministry of Finance has made a request to the IMF for allowing utilization of $2.78 billion windows provided for fighting COVID-19 pandemic for the purpose of meeting financing of budgetary requirements,” top official sources confirmed while talking to The News here on Tuesday and indicated that the Fund staff had agreed to extend this major favor to Pakistan.

Pakistan had received $2.78 billion from the IMF under the Special Drawing Rights Program as the Fund announced $650 billion programs for low-income countries severely hit by coronavirus.

Official sources said that the IMF shared an initial draft of the Memorandum of Financial and Economic Policies (MEFP) with Pakistan and Islamabad sought some explanations before reaching a staff-level agreement. The IMF requires political support from the highest office of the country for getting assurances that all IMF conditions would be implemented in true letter and spirit.

The tough part of the negotiations with the IMF mainly related to fiscal adjustments and it took more time for evolving a consensus on the pace of adjustments. The incumbent Secretary of Finance took a tough stance on certain occasions where he was able to fully grasp the issue. “I can say that he proved his mettle and proved to be a tough negotiator,” one of his close aides commented while talking to this scribe. The official sources said that all things were almost finalized and staff-level agreement with the IMF was expected soon.

However, the Ministry of Finance has decided that they would not issue any press statement and would give their response only after the issuance of a statement from the IMF side. There is a need to finalize a staff-level agreement with the IMF in order to remove uncertainties because lingering confusion is causing consistent depreciation of the rupee against the US dollar.

Federal Minister for Planning Asad Umar is all set to brief the federal cabinet on Wednesday (today) on the latest economic situation with special focus on increasing inflationary pressures.

Minister for Planning Asad Umar, who had returned from the USA on late Monday night, would give an extensive briefing to the federal cabinet on the overall macroeconomic situation and his special focus would be on highlighting the reasons behind the price hike in the domestic market.

The Minister for Planning, Asad Umar, has analyzed CPI-based inflation of the last 12 years since 2010 and found that out of 144 months, almost one/third or 44 months had witnessed double-digit inflation while there were 36 months when the CPI-based inflation hovered around 9 percent.

Now the CPI-based inflation was expected to remain below 9 percent for the ongoing month (October 2021) mainly because of the higher base as CPI-based inflation on monthly basis was standing at 8.9 percent in the same month of the last fiscal year. The Sensitive Price Index (SPI) stood at 14.5 percent and on weekly basis, it went up by 1.4 percent. However, the overall CPI-based inflation was expected to remain around 8.7 percent for the ongoing month as the Pakistan Bureau of Statistics (PBS) would release official figures of CPI-based inflation on coming Monday (November 1, 2021).