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.
The South Asian country 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, told Arab News 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, Dr. Abdul Hafeez Shaikh, the Prime Minister’s special adviser on finance said Pakistan would seek to factor in the economic impact of the coronavirus crisis into the targets of the IMF bailout program. He denied the country was planning to renegotiate the $6 billion loan program.
“Changing ground realities due to the coronavirus COVID-19 crisis need to be factored in with EFF program targets,” the finance adviser had earlier told Arab News in an exclusive interview.
Last month, the governor of 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 calls for tax rationalization... and power tariff hike,” Muzamil Aslam, a senior economist, told Arab News.
“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 the revival of the IMF program will 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 addressing 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.
Pakistan’s central bank forecasts that economic growth will recover to slightly above 2 percent in the current fiscal year (FY21), after falling to negative 0.4 percent last year. The recovery is expected to be driven mainly by manufacturing-related activities and construction.
However, the World Bank predicts the South Asian nation’s GDP will grow by 0.5 percent, the lowest growth rate among all South Asian countries, according to a report released on Thursday.