The restoration (with extension) of Extended Fund Facility (EFF) program with the International Monetary Fund (IMF), which had come to standstill at the tenure-end of Pakistan Tehreek-i-Insaf (PTI) government, has rejuvenated the hope for economic revival of the incumbent government’s rigorous efforts.
The revival would have positive impact on economy with enhanced balance of payment position and increasing foreign exchange reserves at a time when the country has been facing big economic challenges including widening of current account deficit, depleting foreign exchange reserves, currency depreciation and upward inflationary trend, which currently stands at double-digit.
Economic experts believe that the EFF program could lead to economic stability provided the structural reforms advised by IMF are fully implemented. “The 7th EFF review is expected to bring about economic stability in the country. However, there had been and is dire need to implement the structural reforms in letter and spirit to stabilize economy and take it forward to growth,” Economist and former member Economic Advisory Council (EAC) Sakib Sherani told APP. He also highlighted the importance of devising long-term policies, enhancing revenues and promoting exports to help sustainable economic growth.
The finance team of Pakistan, led by Finance Minister Miftah Ismail spent busy routine in Washington held several meetings with the IMF officials during the second last week of April 2022 to put the derailed process on track and complete the much-awaited 7th review of EFF, which had detracted due to fund’s concerns over some of the previous government decisions.
“Based on the constructive discussions with the authorities in Washington, the IMF expects to field a mission to Pakistan in May to resume discussions over policies for completing the 7th EFF review,” said IMF a statement issued at the conclusion of meetings with Pakistan.
The fund has also been requested to enhance the funding available to Pakistan from existing $6b and extend the EFF arrangement through June 2023 as a signal of their commitment to address existing challenges and achieve the program objectives.
Miftah told reporters in Washington that the fund was requested, which it agreed, to extend this program for another year. The talks focused on the subsidies that were provided by the previous government and IMF considered these unsustainable. The fund has also been showing concerns over the widening current account deficit.
Economic experts are of the view that there was need to devise long-term policies to mitigate the dependence of the country on foreign debt, however they consider the current IMF program imperative to bolster the country’s economy.
“We can bring economic stability with the help of external debt, however there was a need to devise long-term policies for sustainable economic growth,” said former State Minister for Finance, Salman Shah. He however feared that the IMF program would stir inflation and lead to price-hike in petroleum and other products.
It is pertinent to mention that IMF had approved 6th tranche of EFF in first week of February and provided Pakistan SDR 750m (about US$1,059m), bringing the total disbursements under the EFF to about US$3,027m. The fund had approved $6b, three-year loan facility for Pakistan back in July 2019 to help resuscitate the country’s ailing economy.
The 7th review could not be completed by the previous government due to political issues inside the country and disagreement with the fund on provision of certain subsidies and resultantly had an impact on economy.
Soon after assuming the power, the incumbent government approached the fund for revival of the program and made successful efforts to put it on track. However, there is need to sustain the process and complete the program in accordance with timelines to have positive impact on economy.
The IMF package could only be helpful when the government implements fund’s structural reforms, said another Economist, Akbar Zaidi, adding that there could be issues of inflation however efforts should be made to boost revenues to help the economy stands on its own feet.