Pakistan receives first tranche of $991.4 million from IMF

IMF had approved a 39-month-long extended fund facility worth $6 billion for Pakistan on July 3.

ISLAMABAD (Dunya News) – Pakistan has received the first tranche of $991.4 million from the International Monetary Fund (IMF).

The amount will improve Pakistan’s foreign exchange reserves. Until now, foreign exchange reserves have increased more than $15 billion, out of which reserves of the central bank have reached up to $8 billion.

IMF executive board formally had approved a 39-month-long extended fund facility (EFF) worth $6 billion for Islamabad on July 3.

Pakistan will get $2 billion annually, under the Extended Fund Facility (EFF), for the period of three years. The amount would help Pakistan stabilise its crippling state of economy and recover from fiscal debt and inflation.

On the other hand, the country is also expected to receive $3 to $4 billion from the Asian Development Bank (ADB) and the World Bank Group.

Sources familiar with the matter told the media that Pakistan’s foreign exchange reserves would be boosted in the short term up to $17 to $18 billion.

Upon receiving those amounts, economists are of the view that rupee would achieve sustainability against the greenback, and help Pakistan to pay its external debts, recover from its fiscal deficit and keep foreign exchange reserves to the equivalent of 3 months of imports.

Pakistan’s government and the IMF had already signed staff-level agreement on May 12.

The government agreed on the loan program and announced plans to slash civil expenditures and freeze military spending while promising to substantially raise revenues to stem a yawning fiscal deficit, and pledging to collect 5.5 trillion rupees in taxes.

"Pakistan is facing a challenging economic environment, with lackluster growth, elevated inflation, high indebtedness and a weak external position," the result of a "legacy" of uneven policies, IMF mission chief Ernesto Ramirez Rigo said in a statement.

A few days ago, the Economic Coordination Committee (ECC) approved a significant increase in prices of natural gas for domestic consumers, which was one of the conditions of the global moneylender to secure its bailout package.

The agreement includes a primary budget deficit target of 0.6 percent of GDP excluding debt service costs.

The government, in its budget proposals for the next financial year, has added Rs357 billion loan from the IMF. An IMF team will visit Islamabad every three months to review the economic indicators of the country.

Fitch Solutions, a US-based global research house, has revised down Pakistan’s economic growth to 2.7% for the next fiscal year 2019-20 from a previously quoted estimate of 4%.

In the report, experts opined that higher taxes will erode the purchasing power which in turn would slowdown consumption growth to 5.3% in FY20, down from 6.3% in FY18.

The consumption currently stands at around 82% of the GDP.

“Given our expectations for continued upside pressure on consumer prices over the coming months, we believe that the consumers’ purchasing power will continue to fall over the coming months, thereby weighing on consumption,” says Fitch.