EDITORIAL: Finance Minister Shaukat Tarin in his most recent press conference revealed that the International Monetary Fund (IMF) has allocated 2.77 billion dollars to Pakistan, commensurate to Pakistan's IMF quota, under its 650 billion dollar global liquidity booster, to be implemented on 23 August, with the objective of minimizing the economic impact of Covid-19. The Fund's Board of Governors approved the facility on 3 August 2021, subsequent to the Fund's executive board approving it in mid-July 2021, with Kristalina Georgieva, Managing Director, hailing it as a "a historic decision - the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis."
Georgieva revealed that emerging and developing nations are to receive around 275 billion dollars in total with the rest allocated to the developed nations, adding that "we will also continue to engage actively with our membership to identify viable options for voluntary channeling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth." Wealthy countries, she further clarified, may transfer their SDRs by using those attributed to them to finance the IMF's Poverty Reduction and Growth Trust Fund, which would increase the supply of loans to low-income countries.
This clearly indicates that the 2.77 billion dollars is not linked to the ongoing 6 billion dollar Extended Fund Facility programme, stalled as the sixth review talks remain inconclusive, and the associated time-bound structural conditions/benchmarks agreed by Pakistan authorities in February 2021 would not apply. These conditions remain largely unimplemented as Shaukat Tarin maintained soon after he was appointed as the finance minister, that they must be staggered or else they would stifle growth - the only engine powerful enough to steer the economy towards an upswing.
The amount of 2.77 billion dollars is equivalent to what would have been disbursed by the Fund till the completion of the ninth review (as per the second to fifth review Fund documents uploaded on its website): 750 million SDRs after the sixth review, 491 million SDRs after the successful completion of each of the subsequent three reviews. The tenth and last review envisages the release of 651 million SDRs scheduled for over a year from now. The obvious conclusion may well be that the IMF leverage with respect to the ongoing EFF conditions may decline by 23 August; however, this deduction may be erroneous as Pakistan's external financing requirement for the ongoing year, as per the Monetary Policy Statement dated 27 July 2021, is around 20 billion dollars while the second to fifth review documents indicate around 10.7 billion dollars from official (non-IMF) creditors - a source that would at best become considerably more expensive to procure if the IMF programme is stalled or at worst dry up completely. Be that as it may, the disbursement of the additional SDRs would certainly give the government some breathing space in commencing the sixth review talks.
Perhaps as an acknowledgement of this Shaukat Tarin noted that tax collections in July surpassed the target that is tantamount to a successful demonstration by the government of its premise that a pro-growth focus will raise revenue. He added that the government is also engaged in widening the tax net - a long-standing demand of the donor agencies as well as the general public which laments the high reliance on indirect taxes for total revenue collection - taxes whose incidence on the poor is greater than on the rich.
The other sector of major donor concern, notably the energy sector, has yet to submit its alternate plan to the World Bank, alternate to what Pakistan agreed in February this year without which the Finance Minister would be unable to conclude the sixth review with the IMF next month.
One would hope that the government takes cognizance of the fact that recent monetary and fiscal policy decisions have given a liquidity boost in this country which account for high inflation rates. In addition, the government's reliance on domestic borrowing - from 16.5 trillion rupees it inherited to over 25 trillion rupees today - to fund its rising expenditure has been another major liquidity booster. The rupee-dollar parity has been eroding since May 2021 in spite of over 17 billion dollar reserves - from 152 on average in May to 164 rupees to the dollar today, with implications on the budget deficit and inflation. It is quite likely that the arrival of 2.77 billion dollars in the foreign reserves next week would have a stabilizing effect on the rupee.
Copyright Business Recorder, 2021
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