RFI from IMF

Managing Director International Monetary Fund (IMF) Kristalina Georgieva in a statement on Pakistan pledged disbursement of its Rapid Financing Instrument (RFI) that would allow the government to meet "additional and urgent balance of payments needs and support social protection, daily wage earners and the healthcare system." Given the staff-level agreement on the second mandatory review dated 27 February 2020 which is indicative of the Fund's satisfaction with Pakistan's reform efforts, with mutually agreed adjustments in the quantitative time bound targets as well as structural benchmarks, Georgieva stated that "the authorities have continued their reform efforts to address Pakistan's economic challenges, but progress is being threatened by the devastating effects of the COVID-19 outbreak and the deterioration in the global economic financial conditions."
The 50 billion dollar RFI fund is an emergency financing facility for low income and emerging markets with 10 billion dollars available at zero interest for the poorest countries through the Rapid Credit Facility; for all other countries it would be available at the same rate as the Stand-By Arrangement (SBA) notably to be repaid within three and a quarter years to five years at the rate of 1.5 percent. Pakistan is not classified as one of the 37 Highly Indebted Poor Countries (HIPC) that are likely to be eligible for zero interest rate, however, at a time when the global economy is in a state of recession due to the COVID-19 any assistance at subsidised rates is greatly appreciated.
Georgieva did not mention the actual amount that Pakistan has requested or may receive under the RFI though the Advisor to the Prime Minister on Finance Dr Hafeez Sheikh, during a recent press conference, mentioned that the government is seeking an additional 1.4 billion dollars from the Fund; however, he added that it would be clubbed with the ongoing 6 billion dollar 39-month Extended Fund Facility (EFF) programme. The EFF is a longer term arrangement (loans to be repaid over 4.6 to 10 years in 12 instalments) relative to SBA.
While clarity will certainly emerge in the coming days as to whether the government requests and receives additional funding under RFI, additional to the 1.4 billion dollars mentioned by Sheikh, or whether it would seek to access the RFI as much as is possible within the 1.4 billion dollars already under negotiations; however, it is relevant to note that Georgieva's statement not only endorses the government's 1.2 trillion rupee COVID-19 package, out of which over 850 billion rupees are targeted to provide relief to the general public, but has appropriately acknowledged that meeting the EFF's time-line conditions would have to be deferred for rather obvious reasons: (i) a global recession that is severely impacting on trade with Pakistan's major consumer exports taking a massive hit (Razzak Dawood acknowledged during his recent press conference that only a quarter of the export orders remain valid while the rest have been delayed); (ii) a decline in remittances as the world buckles down on productive activities due to lockdowns expected to severely impact on these inflows; (iii) a decline in oil prices may provide some reprieve to the balance of payment due to loss of export orders and remittances; however, with the economy at a virtual standstill as a consequence of the IMF EFF conditions agreed in May 2019 (with a projected growth rate of 2.4 percent). COVID-19 may well push the economy into the realm of negative growth and hence the need to renegotiate the EFF programme design to ensure that a positive growth rate, however small, maybe maintained; and (iv) clamping down of all investment-related activities (portfolio and direct) and hot money outflows leading to a collapse of the stock markets around the world (which raises questions about the possibility of success of the Prime Minister's proposal to overseas Pakistanis to park their money in the SBP).
Multilaterals including the IMF have acknowledged that the COVID-19 impact on the global economy far transcends the impact of the 2009 crisis, and requires urgent fast releasing assistance. For Pakistan, already on a Fund programme, the acknowledgement that achieving the ongoing programme objectives will be delayed due to the pandemic must be seen by the country's economic team leaders as a God-sent opportunity to negotiate a package that is realistic in terms of revenue generation, envisages a massive reduction in all expenditure excepting that targeted towards providing relief to the general public struggling under the COVID-19 restrictions, and proactively seeking to divert productivity from existing output to products required as the pandemic rages in the country through a well thought-out incentive package.