IMF to resume stalled $6 billion Pakistan funding

Dubai: The international Monetary Fund (IMF) staff and the Pakistani authorities have reached an agreement to resume funding under  the IMF Extended Fund Facility (EFF).

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An IMF team led by Ernesto Ramirez Rigo, concluded virtual discussions with the Pakistani authorities and reached a staff-level agreement on the resumption of the $6 billion EFF. This agreement is subject to the approval of the IMF’s Executive Board.

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Pending approval of the Executive Board, the IMF agreed to release around $500 million.

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“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 IMF said in a statement.

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Policy response

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The IMF commended the fiscal and monetary policy responses of Pakistan to support the economy in the face of COVID-induced economic hardships.

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“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 Ramirez Rigo.

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High-frequency economic data have started to point to a recovery. Considering these improvements, the economy is projected to expand by 1.5 per cent in2021 from the -0.4 per cent in 2020. 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.

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Recalibration of policy

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The IMF noted 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.

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The strengthened international reserves’ position since the start of the programme—with gross reserves almost doubling to $13 billion until January 2021 and net international reserves (NIR) increasing by over $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.

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