IMF revives EFF amid nasty govt-PTI clatter

ISLAMABAD: The International Monetary (IMF) on Monday revived the Extended Fund Facility (EFF) programme for Pakistan, as its Executive Board approved the disbursement of $1.17 billion for seventh and eight tranche.

Additionally, in order to support programme implementation and meet the higher financing needs in fiscal year 2023, as well as catalyze additional financing, the IMF Board approved an extension of the EFF until end-June 2023 and an augmentation of access by SDR 720 million that will bring the total access under the EFF to about $7 billion.

The board met on Monday to consider Pakistan’ combined seventh and eighth reviews under the extended arrangement under the Extended Fund Facility (EFF); request for waivers of nonobservance of performance criteria and for extension, augmentation, and rephasing of access.

After the Board’s approval, Pakistan will receive around $1.177 billion, which will bring total disbursements under the programme to about $4.2 billion.

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Finance Minister Miftah Ismail tweeted: “Alhamdolillah the IMF Board has approved the revival of our EFF program. We should now be getting the 7th & 8th tranche of $1.17 billion. I want to thank Prime Minister Shehbaz Sharif for taking so many tough decisions and saving Pakistan from default. I congratulate the nation.”

The Fund after the Board meeting issued a statement which stated as; The Executive Board of the International Monetary Fund (IMF) completed today the combined seventh and eighth reviews of the Extended Arrangement under the Extended Fund Facility (EFF) for Pakistan. The Board’s decision allows for an immediate disbursement of SDR 894 million (about US$1.1 billion), bringing total purchases for budget support under the arrangement to about US$3.9 billion.

The EFF was approved by the Executive Board on July 3, 2019 (see Press Release No. 19/264 ) for SDR 4,268 million (about US$6 billion at the time of approval, or 210 percent of quota). In order to support program implementation and meet the higher financing needs in FY23, as well as catalyze additional financing, the IMF Board approved an extension of the EFF until end-June 2023, rephasing and augmentation of access by SDR 720 million that will bring the total access under the EFF to about US$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. The program 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 today the authorities’ request for waivers of nonobservance of performance criteria.

Following the Executive Board’s discussion on Pakistan, Ms. Antoinette Sayeh, Deputy Managing Director and Acting Chair, issued the following statement:

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“Pakistan’s economy has been buffeted by adverse external conditions, due to spillovers from the war in Ukraine, 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 FY2023 is a welcome step to reduce fiscal and external pressures and build confidence. Containing current spending and mobilizing 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 tightening of monetary conditions through higher policy rates was a necessary step to contain inflation. Going forward, continued tight monetary policy would help to 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 undercapitalized 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 of state-owned enterprises, and improve 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.”

Copyright Business Recorder, 2022