ISALAMABAD: On February 15, IMF staff and the Pakistani authorities have reached an agreement on a package of measures to complete second to fifth reviews of the authorities’ reform program supported by the IMF Extended Fund Facility (EFF). The report also recognized Pakistan’s effective efforts regarding controlling money laundering and counter financing of terrorism.
According to the official report on the matter, the agreement also mentions that the package strikes an appropriate balance between supporting the economy, ensuring debt sustainability, and advancing structural reform. Pending approval of the Executive Board, the reviews’ completion would release around US$500 million.
Other than this, the parties also agreed that 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 reports stated.
Whereas the Pakistani authorities reaffirmed their commitment to ambitious policy actions and structural reforms to strengthen economic resilience, adv-ance sustainable growth, and achieve the EFF’s medium-term objectives.
An International Monetary Fund (IMF) team led by Ernesto Ramirez Rigo, concluded virtual discussions with the Pakistani authorities and reached a staff-level agreement on the second to fifth reviews of the authorities’ reform program supported by the IMF 39-month Extended Fund Facility (EFF) arrangement for the amount of SDR 4,268 million (about US$6 billion (press release 19/264), the statement added.
Mentioning the approThis agreement is subject to the approval of the IMF’s Executive Board. The reviews’ completion would release around US$500 million. At the end of the discussions, Mr. Ramirez Rigo issued the following statement:
According to the official report, Mr Ramirez Rigo stated that, “The policies and reforms implemented by the Pakistani authorities prior to the COVID-19 shock had started to reduce economic imbalances and set the conditions for improving economic performance.’
Adding that, most of the targets under the EFF-supported program were on track to be met. However, the pandemic disrupted these improvements and required a shift in authorities’ priorities towards saving lives and supporting households and businesses.
While mentioning the fiscal and monetary gains, the statement also highlights that to a large extent, the authorities’ response was enabled by the fiscal and monetary policy gains attained in the first nine months of FY2020.
It also added that, aside from health containment measures, this included a temporary fiscal stimulus, a large expansion of the social safety net, monetary policy support and targeted financial initiatives. These were supported by sizeable emergency financing from the international community, including from the Fund’s Rapid Financing Instrument (RFI), it mentions.
Rido also mentioned the economic impact of COVID-19 stating that “As result of the authorities’ actions, the COVID-19 first wave started to abate over the 2020 summer and the impact on the economy was significantly reduced. The external current account improved, due to stronger-than-expected remittances, import compression, and a mild export recovery, it added.
Mr Rido also added that, high-frequency economic data also started to point to a recovery. Considering these improvements, the economy is projected to expand by 1.5 percent in FY2021 from the -0.4 percent in FY2020. Still, with the COVID-19 second wave still unfolding around the world, the outlook is subject to a high level of uncertainty and downside risks.
While underlining the macroeconomic policies, Rido mentioned that “The Covid-19 shock has required a careful recalibration of the macroeconomic policy mix, the reforms calendar, and the EFF review schedule. Against this background, the authorities have formulated a package of measures that strikes an appropriate balance between supporting the economy, ensuring debt sustainability, and advancing structural reforms, the report added.
Whereas the fiscal strategy remains anchored by the sustainable primary deficit of FY2021 budget and allows for higher-than-expected COVID-related and social spending to minimize the short-term impact on growth and the most vulnerable, the official report mentioned.
Furthermore referring to the reforms in corporate taxation, the report added that, the targets are supported by careful spending management and revenue measures, including reforms of corporate taxation to make it fairer and more transparent.
The power sector’s strategy aims at financial viability, through management improvements, cost reductions, and adjustments in tariffs and subsidies calibrated to attenuate social and sectoral impacts, it added.
As far as the Pakistan’s performance is concerned, IMF report highlights that the State Bank of Pakistan (SBP)’s monetary and ex-change rate policies have served Pakistan well and were critical in helping to navigate the COVID-19 shock.
Pointing out situation of international reserves the IMF report mentions that the strengthened international reserves’ position since the start of the program—with gross reserves almost doubling to USD 13 billion until January 2021 and net international reserves (NIR) increasing by over USD 9 billion until December 2020—and the shock absorption displayed by the market-based exchange rate, allowed the SBP’s to pre-emptively proceed to a large easing of monetary policy, and a sizeable expansion of refinancing facilities, it added.
Rido also mentioned that the banking system remains healthy, but it will be important for the SBP to continue to remain vigilant and prevent possible financial stability stress as the temporary support is phased out. International reserves are set to improve further reflecting current account developments, the EFF resumption, and international partners’ support.
Regarding the economic reforms in Pakistan, International Monetary Fund mentions that 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).
In addition, they have conducted a triage of SOE, and are moving forward with the audits of contracts awarded for COVID-19 related spending.
The official documents also underlined that Pakis-tan continues to enhance the effectiveness of their anti-monetary launder-ing-/counter financing of terrorism (AML/CFT) framework and progress in completing their action plan with the Financial Action Task Force (FATF).