Pakistan has been a member of the International Monetary Fund (IMF) since 1950. Because of its unpredictable economy, Pakistan has borrowed money from the IMF on 22 separate occasions. The latest loan was for $6 billion, and the IMF said it will open new avenues for funding Pakistan.
IMF staff reached agreement on policies under a review of its Extended Fund Facility (EFF) program
A review of the Extended Fund Facility (EFF) program by IMF staff concluded that the government of Ukraine has made sufficient progress in implementing the agreed policies. The government is well on track to reach its primary balance target of 1.3 percent of GDP by 2022, despite the disruption caused by the recent cyberattacks. It has also taken measures to support vulnerable populations and implement reforms aimed at improving fiscal transparency.
Under the EFF program, a country commits to implement economic and structural reforms in exchange for IMF funds. The program is reviewed regularly by the IMF Executive Board and adjusted as necessary to address economic developments. The size of the loan is based on a country’s need for financing, its capacity to repay and its past use of IMF resources.
The review examined progress made since the first review and updated the country’s macroeconomic framework. In addition, it reached consensus on a robust policy package, including policies to reduce the primary fiscal deficit and increase net international reserves. These key objectives will remain unchanged through 2023. The government should be prepared to take additional actions to meet these objectives.
The review of the EFF program includes a review of the fiscal outlook and the risk of further economic overheating. Further delays in key fiscal reforms could impede progress towards debt sustainability. In addition, the intensification of banking system risks could have unpredictable consequences for the fiscal position. Moreover, further outbreaks of COVID-19 could lead to renewed public health restrictions and headwinds to growth. In addition, Pakistan will need to catch up on reforms in the power sector and engage in proactive monetary policy.
An IMF staff team led by Mary Goodman conducted a hybrid mission to Kenya and Washington DC. The mission examined progress on reforms and policy priorities. It also approved the third review of the Kenyan economic program. The IMF expects the Executive Board to consider the agreement in December. The third review will provide Kenya with additional US$244 million in financing.
After the visit, the staff team will present their preliminary findings to the IMF Executive Board. The report will be subject to management approval and then presented to the Executive Board for approval. Suriname’s government also has committed to adopt a homegrown economic recovery plan and a debt restructuring process. The plan also aims to restore social stability. In addition, the government plans to present a revised 2022 budget to the National Assembly, which will contain reforms that focus on a primary surplus of 1.7 percent of GDP and increase social cash transfers to the most vulnerable citizens of the society. It is also working to advance discussions on debt relief with both official and private creditors.
The review also includes criteria for assessing the program’s effectiveness and progress. The goals of the review are to boost macroeconomic stability and debt sustainability, improve governance, and reduce corruption risks. It will also support the government’s economic recovery and unlock the country’s growth potential. The agreement is subject to IMF management approval and is conditional on the implementation of prior actions. The country will also need to obtain financing assurances from its official creditors. Furthermore, it will need to make a good faith effort to reach an agreement with its private creditors.
IMF will raise the bailout from $6 billion to $7 billion
The International Monetary Fund has boosted its lending capacity to a record this year. With the risks of recession escalating, the crisis lender has nearly $700 billion in special drawing rights available to deploy. The new loan amount will enable the IMF to extend its debt relief to two more years, ending in April 2022.
The new loan amount will double the existing credit lines of the IMF. This is in addition to the $6 billion the country has already committed. The IMF is also doubling its emergency credit lines and has access to $50 billion in private capital markets. Its gold reserves, at 100 million fine ounces, are worth $37 billion.
Although the IMF bailouts have helped the struggling economies of the Eurozone and Latin America, these aid packages do not guarantee that a country will be able to recover. Some of the measures the IMF requires include cutting fuel subsidies to ease the financial situation of a struggling population. Other measures outlined by the IMF include depreciating the currency and tightening fiscal and monetary policy. These measures will have negative effects on economic growth.
The United States is hesitant to throw more money into the pot to help struggling countries. Russia, Brazil, and China are also wary of throwing money into the IMF’s pot. The emerging market economies also want more voting power in the global lender. However, the new money is welcomed by the European Union and other members of the IMF.
The IMF’s emergency loans are intended to provide short-term financing for countries in trouble. The money is meant to help balance of payments problems without causing economic instability. The bailout is meant to prevent the spread of a financial crisis throughout the world. But this is only a temporary solution for these countries. The money could be better spent on medical supplies and containment of an outbreak.
The International Monetary Fund is the principal financial agency of the United Nations. The IMF works with 190 member nations and aims to reduce poverty, foster trade, and promote financial stability. It also works with developing countries to develop capacity and finance, and monitors debt sustainability.
The IMF is also mindful of the need to keep all countries in check to avoid another Great Depression. Therefore, raising the bailout from $6 billion to $7 billion is the prudent approach. It is the only way the IMF can keep the world’s economic stability intact.
The new IMF bailout amount does not represent a cure-all for distressed economies. The world economy is still fragile after the COVID-19 pandemic and the ongoing Russia-Ukraine conflict has added to the discomfort for stressed economies. The IMF bailouts have helped most of these economies, but the road to recovery will be bumpy.
IMF will open other avenues of funding for Pakistan
In a recent meeting, Pakistan Finance Minister and the Chinese Ambassador met to discuss the recent floods in Pakistan. They discussed the need for humanitarian aid, and the government’s efforts to assist the affected people. The Minister commended the Chinese government’s support and expressed gratitude for the recent syndicate facility of RMB 15 billion.
The new government is tasked with reducing the country’s current account and fiscal deficits. The IMF is considering a topping-up programme of the Extended Fund Facility, which will give Pakistan an additional $1 billion to fund its economic reforms. While Pakistan needs the funds to reduce its current account deficits and rebalance its economy, it is important to note that the country has already raised its policy interest rate to 15%. Meanwhile, the country is facing a balance of payments crisis due to high energy import prices.
The Finance Minister also pledged to facilitate the business community in promoting its activities. He emphasized the need for further improvement in the country’s export base. In addition, the delegation thanked the Finance Minister for addressing the issues that they had raised. The Finance Minister assured them that the government remained committed to the terms of the IMF programme.
A major sticking point has been Pakistan’s central bank’s autonomy. Previously, its governors were commercial bankers and bureaucrats, which limited its independence. As a result, the central bank’s policy prescriptions were reactive, resulting in a disastrous fixed exchange rate regime. The government needs to enact a new set of laws that will ensure the independence of the central bank and strengthen its independence.
The World Bank’s VP also commended the government’s efforts to tackle the flood crisis. The recent flood crisis has wreaked havoc on both human lives and the country’s economic health. The Finance Minister thanked the World Bank team for their assistance and assured that the government is ready to deal with such challenges. The government is focused on rebuilding projects in a climate-resilient manner.
The meeting was attended by senior officials from the Finance Division and the Finance Ministry. A representative of the Asian Infrastructure and Investment Bank (AIIB) was also in attendance. The Finance Minister also briefed the AIIB delegation on Pakistan’s financial status and targeted revenue goals. The delegation was also informed about the floods that affected the country during the recent year.
On the first day of the meeting, the Ambassador of Japan also expressed his interest in strengthening bilateral relations and economic relations with Pakistan. The Finance Minister assured the Ambassador of his full support and congratulated him on his new role. The two nations have enjoyed a long-term relationship.
The meeting also discussed how to facilitate the business community and enhance exports and business activities. The IMF mission chief emphasized that the country needs to focus on inclusive development programs to ensure a stable economy. Moreover, the Finance Minister shared that the government’s priorities include structural reform and inclusive development programs. The Finance Minister shared the devastation caused by the recent floods and expressed gratitude for the ADB’s help in dealing with this emergency. In addition, the Asian Development Bank delegation briefed the Finance Minister on Pakistan’s BRACE program.
