Karim Madad

Former adviser to the finance ministry and renowned economist Dr Ashfaq Hassan Khan has welcomed the International Monetary Fund’s approval to unlock the much-delayed funding for Pakistan and expressed the hope that it would encourage other donors and friendly countries to extend financial help to Pakistan.

“The IMF loan disbursement will provide a financial cushion to the country. Other donor countries and organisations would be encouraged to do business and help Pakistan financially, leading to improvement in the national economy,” Ashfaq told WealthPK while commenting on the IMF executive board’s approval to release a tranche of over $1 billion to Pakistan under the combined seventh and eighth reviews of the Extended Fund Facility (EFF). The board’s decision allowed for an immediate disbursement of SDR894 million (about $1.1 billion), bringing total purchases for budget support under the arrangement to about $3.9 billion, according to a press release of IMF.

Meanwhile, Finance Minister Miftah Ismail, in a tweet, said now Pakistan would receive the 7th and 8th tranches of $1.17 billion from the IMF. The finance minister also thanked Prime Minister Shehbaz Sharif for taking so many tough decisions and saving Pakistan from default. He also congratulated the nation on the good news. About $6 billion EFF was approved by the lender’s executive board on July 3, 2019. In order to support programme implementation and meet the higher financing needs in financial year 2022-23, as well as catalyse additional financing, the IMF board approved an extension of the EFF until end-June 2023, rephasing and augmentation of access by SDR720 million, which will bring the total access under the EFF to about $6.5 billion.

Pakistan is at a challenging economic juncture. A difficult external environment combined with procyclical domestic policies fuelled domestic demand to unsustainable levels. The resultant economic overheating led to large fiscal and external deficits in FY22, contributed to rising inflation and eroded reserve buffers. According to the IMF statement, the programme seeks to address domestic and external imbalances, and ensure fiscal discipline and debt sustainability while protecting social spending, safeguarding monetary and financial stability and maintaining a market-determined exchange rate and rebuilding external buffers.

The executive board also approved the authorities’ request for waivers of non-observance of performance criteria. Following the executive board’s discussion on Pakistan, Ms Antoinette Sayeh, Deputy Managing Director and Acting Chair, also issued the following statement: “Pakistan’s economy has been buffeted by adverse external conditions, due to spillovers from the Russia-Ukraine conflict and domestic challenges, including from accommodative policies that resulted in uneven and unbalanced growth. Steadfast implementation of corrective policies and reforms remain essential to regain macroeconomic stability, address imbalances and lay the foundation for inclusive and sustainable growth.”

“The authorities’ plan to achieve a small primary surplus in FY23 is a welcome step to reduce fiscal and external pressures and build confidence. Containing current spending and mobilising tax revenues are critical to create space for much-needed social protection and strengthen public debt sustainability. Efforts to strengthen the viability of the energy sector and reduce unsustainable losses, including by adhering to the scheduled increases in fuel levies and energy tariffs, are also essential. Further efforts to reduce poverty and protect the most vulnerable by enhancing targeted transfers are important, especially in the current high-inflation environment,” the statement went on.

“The tightening of monetary conditions through higher policy rates was a necessary step to contain inflation. Going forward, continued tight monetary policy would help reduce inflation and help address external imbalances. Maintaining proactive and data-driven monetary policy would support these objectives. At the same time, close oversight of the banking system and decisive action to address undercapitalised financial institutions would help to support financial stability. Preserving a market-determined exchange rate remains crucial to absorb external shocks, maintain competitiveness, and rebuild international reserves.”

“Accelerating structural reforms to strengthen governance, including that of state-owned enterprises, and improving the business environment would support sustainable growth. Reforms that create a fair-and-level playing field for business, investment, and trade necessary for job creation and the development of a strong private sector are essential,” the statement issued by Ms Antoinette Sayeh said.

Credit : Independent News Pakistan-WealthPk