ISLAMABAD: The Executive Board of the International Monetary Fund (IMF) approved the disbursement of US$1.386 billion under the Rapid Financing Instrument (RFI) to help Pakistan address the economic impact of the Covid-19 shock.
The fund approved “a purchase of Pakistan under the Rapid Financing Instrument (RFI) equivalent to SDR 1,015.5 million (US$ 1.386 billion, 50 percent of quota) to meet the urgent balance of payment needs stemming from the outbreak of the COVID-19 pandemic,” said IMF press statement received here Friday.
The statement said that while uncertainty remained high, the near-term economic impact of COVID-19 was expected to be significant, giving rise to large fiscal and external financing needs.
The IMF support would help to provide a backstop against the decline in international reserves and provide financing to the budget for targeted and temporary spending increases aimed at containing the pandemic and mitigating its economic impact.
“The IMF remains closely engaged with the Pakistani authorities and as the impact of the COVID-19 shock subsides will resume discussions as part of the current Extended Fund Facility (EFF),” it added.
Following the Executive Board discussion, Geoffrey Okamoto, First Deputy Managing Director and Acting Chair, in a statement said that the outbreak of Covid-19 was having a significant impact on the Pakistani economy.
The domestic containment measures, coupled with the global downturn, are severely affecting growth and straining external financing, Okamoto said adding that this had created an urgent balance of payments need.
“In this context of heightened uncertainty, IMF emergency financing under the Rapid Financing Instrument provides strong support to the authorities’ emergency policy response, preserving fiscal space for essential health spending, shoring up confidence, and catalyzing additional donor support,” the IMF Acting Chair added.
Okamoto said that in response to the crisis, the government of Pakistan had taken swift action to halt the community spread of the virus and introduced an economic stimulus package aimed at accommodating the spending needed to tackle the health emergency and supporting economic activity.
Crucially, the authorities are increasing public health spending and strengthening social safety net programs to provide immediate relief to the most vulnerable.
Similarly, the State Bank of Pakistan has adopted a timely set of measures, including a lowering of the policy rate and new refinancing facilities, to support liquidity and credit conditions and safeguard financial stability. In this context, the authorities’ policies should be targeted and temporary, Okamoto added.
“As the crisis abates, the authorities’ renewed commitment to the reforms in the existing Extended Fund Facility—in particular those related to fiscal consolidation strategy, energy sector, governance, and remaining AML/CFT deficiencies—will be crucial to entrench resilience, boost Pakistan’s growth potential, and deliver broad based benefits for all Pakistanis.
Expeditious donor support is needed to close the remaining balance of payments gap and ease the adjustment burden,” the IMF Acting Chair said.