IMF Board approves 6th tranche under EFF for Pakistan

February 2, 2022 (MLN): International Monetary Fund (IMF), has approved the release of the 6th tranche of $1bn under the Extended Fund Facility (EFF) program for Pakistan.

“I am pleased to announce that IMF Board has approved 6th tranche of their programme for Pakistan.” Finance Minister in a tweet said today.

The Executive Board of IMF that met in Washington today revived Pakistan’s stalled programme and cleared the $1 billion tranche after the government successfully managed to get the State Bank (Amendment) Bill 2021 cleared from the Upper House of Parliament which was the last stumbling block in reviving the stalled programme.

The EFF was approved by the Executive Board on July 3, 2019, for SDR 4,268 million (about US$6 billion at the time of approval, or 210 percent of quota).

The program aims to support Pakistan's policies to help the economic recovery from the COVID-19 pandemic, ensure macroeconomic and debt sustainability, and advance structural reforms to lay the foundations for strong, job-rich, and long-lasting growth that benefits all Pakistanis, IMF said in a statement. 

Prior to this, IMF has released $2 billion for Pakistan. The last tranche of $500 million was approved in March 2021.

With the approval of the $1 billion loans, the IMF's lending under the program will increase to $3 billion. The remaining $3 billion will be disbursed by IMF after completing the remaining program reviews.

The recent policy adjustment was appropriate to address these challenges and maintain economic stability. The economy is set to continue recovering in FY 2022, with real GDP growth projected at 4 percent, while inflation is expected to pick up this year before gradually slowing down.

Continued commitment to a market-determined exchange rate and a prudent macroeconomic policy mix will help reduce the current account deficit, and ease external pressures over the medium term, the statement added. 

Following the Executive Board's discussion on Pakistan, Ms. Antoinette Sayeh, Deputy Managing Director and Acting Chair stated, “The Pakistani economy has continued to recover despite the challenges from the COVID-19 pandemic, but imbalances have widened and risks remain elevated."

The authorities’ recent policy efforts to strengthen economic resilience are welcomed. Timely and consistent implementation of policies and reforms remain essential to lay the ground for stronger and more sustainable growth.

Appreciating the government's effort, the statement added that “The authorities have taken important measures to strengthen fiscal policy and put public finances on a sounder footing. Along with careful spending management, revenue mobilization will help to create space for much-needed spending on infrastructure and social protection, while improving debt sustainability."

Maintaining the momentum on the reform of personal income taxation and harmonization of general sales taxes is essential. Broader reforms in tax administration and public financial and debt management are expected to further improve the fiscal framework, it noted. 

The adoption of amendments to the central bank Act is a welcome step toward strengthening its independence to pursue its mandates of price and financial stability. The recent monetary policy tightening was necessary and continued proactive, data-driven monetary policy would help to anchor inflation, it said. 

Closer oversight of financial institutions to ensure they remain well-capitalized would help to maintain financial stability. Preserving a market-determined exchange rate is crucial to absorb external shocks, maintain competitiveness, and rebuild reserves. The authorities are committed to removing the existing exchange restrictions and multiple currency practices when BOP conditions stabilize, it noted.

IMF also underlined that strong efforts to advance electricity sector reform are needed to restore the sector's financial viability and address adverse spillovers on the budget, financial sector, and real economy.

The IFI-supported Circular Debt Management Plan (CDMP) will help to guide the planned management improvements, cost reductions, alignment of tariffs with cost recovery levels, and better targeting of subsidies to the most vulnerable.

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