The International Monetary Fund (IMF) and Pakistan have reached a staff-level agreement to resume funding under the IMF Extended Fund Facility (EFF). An IMF team led by Ernesto Ramirez Rigo, concluded virtual discussions with the Pakistani authorities and reached an agreement to club four pending reviews and then make a request for release of $500 million tranche, subject to implementation of certain conditions.
The package strikes an appropriate balance between supporting the economy, ensuring debt sustainability, and advancing structural reform, read a statement issued by the IMF from Washington. Pending approval of the Executive Board, the reviews’ completion would release around US$500 million, it added.
IMF agreed to revive the $6bn stalled program after Islamabad consented to rationalize expenditures, increase electricity prices and impose additional taxes.
Confirming the agreement, Finance Minister Dr Abdul Hafeez Sheikh tweeted, “overcoming the challenges created by the pandemic has required concerted effort”.
IMF commends Pakistan’s policy responses
The International Monetary Fund lauded Pakistan’s efforts to formulate effective fiscal and monetary polices in the wake of COVID19 to keep the economy on track.
“The COVID-19 shock temporarily disrupted Pakistan’s progress under the EFF-supported program. However, the authorities’ policies and allowing higher than expected COVID-related social spending, have been critical in supporting the economy and saving lives and households,” the IMF said in a statement.
The $6bn dollar loan program was initiated in 2019 and IMF has already disbursed $1.45 billion in two tranches. However, it had been put on a hold since January last year as PM Khan refused to jack up the electricity prices and impose additional taxes keeping in mind public welfare.
The negotiations for the second tranche of the loan program resumed after the government agreed to meet the requirements of the global lender between February and May this year. The hike in the energy prices is one precondition that has already been met.
The Pakistani authorities remain committed to ambitious policy actions and structural reforms to strengthen economic resilience, advance sustainable growth, and achieve the EFF’s medium-term objectives, read the statement issued by the global lender.
Last year, State Bank of Pakistan (SBP) Governor Raza Baqir had said that Pakistan was negotiating with IMF to put the fiscal program back on track.
Besides appreciating SBP’s policies, IMF said, “The authorities are moving steadfastly on a number of other important reforms, including on strengthening regulatory agencies’ legal frameworks (NEPRA and OGRA Acts), consolidating SBP’s autonomy (SBP Act), and improving state owned enterprises (SOE) management (SOE Law).
Pakistan and the IMF have been working to execute IMF-supported economic reforms, specifically tax collection aimed at stabilizing the economy and bridging the fiscal debt gap.
Minister for Industries and Production Hammad Azhar welcomed the positive development and tweeted, “Pakistan’s economy has “successfully gone through a stabilisation phase, fared better than most countries during the Covid-19 shock and is now entering the growth period”. The agreement with the IMF would “provide certainty and buffers to the economy”, he added.
Pakistan's economy has successfully gone through a stabilisation phase, fared better than most countries during the covid-19 shock and is now entering the growth period.
The staff level agreement with IMF will provide certainty and buffers to the economy during this journey.
— Hammad Azhar (@Hammad_Azhar) February 16, 2021
Both Pakistan and IMF have decided to club the pending second, third, fourth and fifth reviews of the program.
If these reviews were completed separately, the disbursements would have amounted to $2.2 billion, which IMF has now reduced to just $500 million.
The agreement is expected to get the approval from the IMF board next month.