Pakistan and IMF – An overview of bailout package

The visiting delegation of the International Monetary Fund (IMF) has concluded that Pakistan has achieved all its economic goals in terms of performance and the structural benchmark has been completed.

An IMF mission, led by Ernesto Ramirez Rigo, was in Pakistan for 10 days for the second review of Pakistan’s economic reform program under the Extended Fund Facility (EFF).

On July 3, 2019, Pakistan and IMF signed a $6 billion loan agreement under the EFF in which two tranches have been approved by the IMF. The third tranche is under negotiation.

Let’s take a deep review of the IMF program and the concluded statement.

EFF program

The International Monetary Fund (IMF) approved a 39-month extended arrangement under the Extended Fund Facility (EFF) for Pakistan for an amount of $6 billion to support Pakistan’s economic reform program.

The EFF-supported program aims to help Pakistan to reduce economically and generate sustainability. Some of the key elements of the program that Pakistan has to focus on are:

1. A Decisive fiscal consolidation to reduce public debt and build resilience, starting with the adoption of an ambitious FY 2020 budget.

2. Expanding social spending to support the most vulnerable.

3. Reforms in Energy sector to eliminate quasi-fiscal losses and encourage investments.

4. Strengthening the institutions for structural reforms.

5. Promoting an investment-friendly environment.

IMF lending programs and Pakistan

IMF lending programs are of two types; GRA and PRGT. GRA is reserved for not-so-poor countries to wealthy countries and also known as the bailout package, whereas PRGT is for poor countries. Pakistan became a member of International Monetary Fund in 1950. Since then Pakistan has lent 13 bailout packages including a recent $6 billion loans and overall it was the 22^nd loan. For the first time, Pakistan went to IMF for a bailout was in 1958.

External debt of Pakistan

External Debt of Pakistan has increased by more than $105 billion with a record increase of 11 percent. External debt has reached its highest level in history.

Pakistan owes debt to several organizations which include Paris Club ($11.3 billion), multilateral and other donors ($27 billion) and other international bonds such as Eurobond and Sukuk ($12 billion). The country has also obtained commercial loans of $8.8 billion and a short-term loan of less than one year stood at $1.1 billion.

In Pakistan Tehreek-e-Insaaf government, Pakistan borrowed $1.8 billion from allied countries, China and Saudi Arabia, from August 2018 to September 2019.

IMF Statement at conclusion of review

The International Monetary Fund delegation that arrived in Pakistan for the review of Pakistan’s economic reform has concluded that Pakistan has been successfully completed structural benchmarks and has met the all-end December performance criteria.

IMF Mission said that it held constructive and productive discussion with Pakistani authorities and the IMF mission also acknowledged that considerable reforms have been made in advancing reforms and continuing with sound economic policies.

IMF also admits that the economy of the country has been stabilised and remains on a path of gradual recovery, adding that the current amount deficit had declined due to the real exchange rate.

“Pakistan international reserves are increasing at a considerable pace faster than anticipated,” IMF added.

IMF further stated that inflation was expected to decline as the shocks caused by sudden depreciation had subsided, adding that the first half of the FY had been strong.

“Social spending on social and development projects had increased,” IMF concluded.

What’s Next?

The positive remarks of the visiting IMF delegation show the increasing stability in Pakistan’s economy. The possibilities of the third tranche of the $6 billion bailout package have been increased; however, the incumbent government of Pakistan has to complete the gap of the tax revenue.

Despite the IMF mission concluded the statement, the final decision will come from the Washington Head Office of IMF.