Pakistan wins IMF's confidence, to get $450m loan tranche

Muzaffar Rizvi/Dubai
Filed on November 10, 2019
pakistan, economy, imran khan, imf loan

(Imran Khan)

After successful review of EFF programme implementation.

The International Monetary Fund (IMF) has praised Pakistan's economic performance and agreed upon the next steps, paving the way for the release of $450 million tranche under its three-year loan package.

The Washington-based financial institution, which concluded its 12-day visit to Pakistan on Friday, said all performance criterion for September-end were met with comfortable margins despite a difficult environment. Sustaining sound policies and advancing structural reforms remain key priorities to enhance resilience and pave the way for a stronger and sustainable growth, it added.

"Completion of the review will enable disbursement of SDR328 million (or around $450 million) and will help unlock significant funding from bilateral and multilateral partners," said Ramirez Rigo, head of an IMF mission to Islamabad.

The IMF agreed upon a $6 billion rescue package for Pakistan in April - its 13th bailout programme for the South Asian nation since the late 1980s. It released the first tranche of $1 billion in July while the remainder of the amount will be given to Islamabad over the term of the agreement - spanning over 39 months - expiring in 2022.

The mission was in Islamabad from October 28 to November 8 to conduct the first review of Pakistan economy under the extended fund facility approved in July. The next IMF economic review is expected to take place in early 2020.

"Once the IMF's executive board gives the go ahead in its next meeting in December, the IMF will clear second tranche of $450 million that will provide a much needed cushion to the country's balance of payments and foreign exchange reserves," a finance ministry official told Khaleej Times on Saturday.

The IMF mission head highlighted signs of improvement in economic stability, including the move to a flexible exchange rate, and slowing inflation that is projected to fall under 12 per cent next year. However, the IMF mission said more work is needed to curb money laundering and terror financing.

"The government policies have started to bear fruit, helping to reign in buildup of vulnerabilities and restore economic stability. The external and fiscal deficits are narrowing, inflation is expected to decline and growth (although slow) remains positive," Rigo said in a statement late on Friday.

"The near-term macroeconomic outlook is broadly unchanged from the time of the programme approval, with gradually strengthening activity and average inflation expected to decelerate to 11.8 per cent in fiscal year 2020. However, domestic and international risks remain, and structural economic challenges persist," the IMF statement said.

'Positive for Pakistan'

'IMF Mission concludes successfully. IMF confirms that Pakistan met all First Quarter Performance Criteria by good margins and economy continuing to get better. Thank you PM and entire team!," Dr Abdul Hafeez Shaikh, advisor to Prime Minister on finance, revenue and economic affairs, said in a tweet on Friday night.??

Cricketer-turned politician Imran Khan, who took power in August 2018, secured temporary relief from close allies such as China and Saudi Arabia with short-term loans worth more than $10 billion to buffer $15.517 billion foreign currency reserves and ease pressures on the country's current account, which narrowed 80 per cent to a 41-month low at $259 million in September from $1.27 billion in the same month of last year.

But analysts had called an IMF bailout inevitable to help right the South Asian nation's struggling economy.?? Dr Pervez Tahir, former chief economist, Government of Pakistan, said the country should adopt concrete steps to ensure sustainable growth in years to come.

??"Growth is not a stage beyond stability. It has to be pursued simultaneously in a creative manner. We have seen announcements of 'stability over, growth begins' in the past, only to degenerate into our familiar boom-bust cycle," Tahir told Khaleej Times.

??Under the IMF's extended fund facility, the government agreed to slash civil expenditure and freeze military spending while promising to substantially raise revenues to stem a yawning fiscal deficit, and pledging to collect Rs5.5 trillion ($36 billion) in taxes. Pakistan has also lifted interest rates over the past year to tame high inflation, which eased to 11.04 per cent in October from 11.37 per cent in September.??

Muhammad Farid Alam, chief executive of AKD Securities Limited, said the IMF reform programme is off to a promising start and its implementation on all counts is strong so far.

"The government has met all the first quarter quantitative targets set by the IMF by a wide margin. There is a strong political will and commitment at the highest level to the reform programme, which makes me optimistic about the future outlook of the economy," Alam told Khaleej Times.??

The government needs more policy credibility to rein in little uncertainty left on the horizon, which can be earned through congruence in reforms objectives and plans as well as strategic communication and media management," he added.

??The IMF mission concluded their visit to Pakistan by meeting Abdul Hafeez Shaikh on Friday. The IMF team also met the government's financial team, provincial governments' representatives and other stakeholders during the official visit to Pakistan.?      

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