ISLAMABAD: Pakistan has reached an agreement with the International Monetary Fund for a package that would release $500 million to the country, following the second to fifth reviews of the authorities’ economic reform programme supported by the IMF Extended Fund Facility (EFF).
According to a press statement issued by IMF on Tuesday, an 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 programme supported by the IMF 39-month EFF arrangement for the amount of SDR 4,268 million (about US$6 billion).
The package strikes an appropriate balance between supporting the economy, ensuring debt sustainability, and advancing structural reform, the statement added.
According to the IMF, 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. Most of the targets under the EFF-supported programme 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.
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, said the statement.
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.
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 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, said the statement.
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, said the statement. – TLTP