WASHINGTON: The International Monetary Fund (IMF) announced Monday that it has reached a staff-level agreement with Pakistan on policies and reforms needed to complete the sixth review under the $6 billion Extended Fund Facility (EFF), providing a major relief to the country’s economy.
The agreement is subject to approval of the global lender’s Executive Board. According to IMF’s concluding statement, completion of the review would make available about $1,059 million in special drawing rights (SDRs) to Pakistan, bringing total disbursements under the EFF to 3,027 million dollars.
Acknowledging a “difficult environment,” the IMF praised Pakistan’s progress in implementing its EFF-supported programme. “All quantitative performance criteria for end-June were met with wide margins, except for that on the primary budget deficit,” the statement said.
“Notable achievements on the structural front include the finalization of the National Socio-Economic Registry update, parliamentary adoption of the National Electric Power Regulatory Authority (NEPRA) Act amendments, notification of all pending quarterly power tariff adjustments, and payment of the first tranche of outstanding arrears to independent power producers to unlock lower capacity payments fixed in renegotiated power purchase agreements,” it said, adding that progress to curb terror financing and combat money laundering had also been noted.
“Available data suggests that a strong economic recovery has gained hold, benefiting from the authorities’ multifaceted policy response to the COVID-19 pandemic that has helped contain its human and macroeconomic ramifications,” said the global lender, praising the Federal Board of Revenue (FBR)’s tax revenue collection.
However, it added, “external pressures” had increased the current account deficit and caused rupee depreciation due to “stronger economic activity, an expansionary macroeconomic policy mix, and higher international commodity prices.” The IMF said that in a bid to counter such pressures, the government had started to gradually ease coronavirus-related stimulus measures.
“The State Bank of Pakistan has also taken the right steps by starting to reverse the accommodative monetary policy stance, strengthening some macroprudential measures to contain consumer credit growth, and providing forward guidance,” it said, adding that government was also planning to introduce fiscal measures to reduce the primary deficit.
The government’s policies, according to IMF, would help safeguard the positive near-term outlook and allow Pakistan’s economic growth to achieve or exceed 4 percent in the current fiscal year and 4.5% in FY23.
It said that while inflation remained high, it should “start to see a declining trend once the pass-through of rupee depreciation is absorbed, and temporary supply-side constraints and demand-side pressures dissipate.” The statement added, “The IMF team is grateful to the Pakistani authorities for open and constructive discussions.”