IMF mission arrives in Pakistan to evaluate performance under loan programme

The IMF will hold meetings with FBR's Shabbar Zaidi and Hafeez Sheikh.

ISLAMABAD (Dunya News) – The International Monetary Fund (IMF) has sent its mission to review and evaluate Pakistan’s performance on implementation of its 39-month-long extended fund facility (EFF) worth $6 billion to the debt-ridden country as it hopes to secure the next tranche of approximately $460 million.

The IMF mission will review Pakistan’s performance against six performance criteria related to Net International Reserves (NIR), Net Domestic Assets (NDA), net foreign currency swap position, primary budget deficit target, net government borrowing from the central bank and stock of sovereign guarantees issued by the government.

The IMF will hold meetings with Federal Bureau of Revenue (FBR) Chairman Shabbar Zaidi and Advisor to the Prime Minister on Finance Abdul Hafeez Sheikh.

After staying for two weeks, the IMF staff in case of striking staff level agreement will circulate its staff report among the board members and later the IMF’s executive board will take decision on release of second tranche.

According to the signed agreement in July this year, Pakistan will get $2 billion annually, under the EFF, for the period of three years. The amount is supposed to help Pakistan stabilise its crippling state of economy and recover from fiscal debt and inflation.

On October 21, the IMF and the World Bank Group expressed support for Pakistan’s economy, while the global funds also appreciated the economic reforms of the country.

The assurances were given by the managing directors of the IMF and the Work Bank during separate meetings with Sheikh in Washington, Radio Pakistan reported.

During a meeting, Shaikh and his delegation held an extensive session with the IMF Managing Director Ms Krsitalina Georgieva and other senior fund officials.

The finance adviser gave an overview of the implementation of the IMF program in Pakistan. He stated that the first quarter results indicated that Pakistan’s economy was on its path to stabilization. The reforms initiated under the IMF program were demonstrating positive outcomes.

Ms Georgieva stated that the IMF recognised that tough decisions were being made and implemented to stabilise Pakistan’s economy. She appreciated the commitment of the government and assured continued support of the IMF for the reform process.

The World Bank has forecasted Pakistan’s economic growth to slow down for the next two years as it faces yet another macroeconomic crisis due to massive twin deficits and low foreign reserves, according to a report entitled “South Asia Focus: Making (De)centralisation Work” released from Washington on Sunday.

The WB, in its annual flagship report, further notes that Prime Minister Imran Khan’s government would miss inflation, public debt, and fiscal deficit reduction targets, while underlining major challenges that the government will encounter at least till the end of the third year in power.

“GDP growth (at factor cost) decelerated to 3.3 percent in FY19 – 2.2 percentage points lower than FY18 - as gradual policy adjustments to tackle macroeconomic imbalances started to take effect. These adjustments included a tightened monetary stance, cuts in public sector development expenditures, and enhanced focus on higher tax collections. As a result, large scale manufacturing, which accounts for half of overall industrial output, contracted by 3.6 percent in FY19.

The services sector, which contributes over 60 percent to total output, decelerated to 4.7 percent in FY19 compared to 6.2 percent last year.”

It observes that despite of having an IMF extended fund facility, the country’s economic growth was expected to remain low in the near term and that Pakistan’s economic behaviour is different than all the other South Asian nations.

“The medium-term growth outlook hinges upon the country’s ability to implement necessary structural reforms to boost competitiveness and achieve sustained growth. Progress in poverty reduction is expected to be limited during the macroeconomic adjustment period.”

According to the report, measures to restore macroeconomic stability in Pakistan weigh heavily on growth, which is expected to have dropped to 3.3 per cent.

“Economic policies over the past few years have resulted in increased debt levels and an erosion of fiscal and external buffers, affecting the economy’s ability to absorb shocks. The country needs to restore these buffers, especially because turbulence in global financial markets could affect the country’s access to private external financing. And the weakening global economy and rising trade tensions could dampen external demand.”

Regarding the outlook, the report said growth was projected to decelerate to 2.4 per cent in the fiscal year 2020, with continued fiscal consolidation and a tight monetary policy stance. The IMF adjustment programme entailed a rebalancing from domestic to external demand.

Pakistan, similar to many South Asian countries, is growing half of its potential and in the fiscal year 2019-20, it would grow at a rate of only 2.4%, according to the WB report. The forecast is in line with the Ministry of Finance and the IMF projections.

The WB said the IMF programme is expected to help growth recover from the fiscal year 2021-22 onwards. But this recovery is conditional to relatively stable global markets, a decline in international oil prices and reduced political and security risks. In April, the WB had predicted Pakistan’s economy to grow by 2.7% in this fiscal year and 3.9% in the next fiscal year.