Fund facility ‘virtually paused’ as IMF awaits new govt

ISLAMABAD: After the Pakistan Tehreek-e-Insaf government came to a sudden and premature end, leaving the country in a constitutional vacuum and economic uncertainty, the International Monetary Fund (IMF) programme with Pakistan is expected to hit another ‘pause’.

Esther Perez Ruiz, IMF’s resident representative in Islamabad, told Dawn that the fund would engage with the new government once it was formed.

The fund’s $6bn Extended Fund Facility (EFF) for Pakistan had already hit a deadlock earlier this month when beleaguered Prime Minister Imran Khan announced a major relief package involving a tax amnesty scheme and energy price cuts, seen by the IMF staff mission as a reversal of agreed reform measures introduced in the mini-budget to revive the programme after months of virtual suspension.

A bloodbath in the stock market on Monday, following days of exchange rate depreciation, triggered fears that the IMF had terminated or suspended its programme with Pakistan after the constitutional vacuum caused by Mr Khan’s decision to seek dissolution of the National Assembly moments before facing a no-confidence motion.

Fund’s country rep says ‘no concept of suspension’ in IMF programme

When contacted, IMF’s Esther Perez Ruiz said: “The Fund looks forward to continue its support to Pakistan and, once a new government is formed, we will engage on policies to promote macroeconomic stability, and inquire about intentions vis-a-vis programme engagement,” she said, adding “There is no concept of suspension within IMF programmes”

The Ministry of Finance also claimed that the two sides “remain engaged in data-sharing and reform discussions as part of EFF,” adding that there is no truth to speculation about the suspension of the programme”.

The EFF, approved by the IMF board on July 3, 2019 had remained mostly off-track throughout its 33-month period and should have come to its conclusion by September 2022 under the original schedule.

After being on the brink of a severe currency and fiscal crisis, the programme helped stabilise the economy by re-balancing the macroeconomic policy mix. The gains during the first nine months of the programme strengthened buffers and allowed Pakistan to weather the unprecedented Covid-19 shock, according to the IMF.

After an initial take-off, though, the programme remained virtually paused for well over a year and was revived following the completion of some prior actions, including independence from the central bank and commitments to do away with tax exemptions and tax amnesty schemes while increasing energy prices for full cost recovery.

This led the IMF to observe that Pakistan has a long history of stop-and-go economic policies and weak implementation of structural reforms. This has resulted in elevated vulnerabilities and low investment and growth, which weigh on the population, including through high poverty incidence, weak development indicators, and limited progress in achieving the UN’s Sustainable Development Goals (SDGs).

Chequered history

Despite significant efforts to bring the programme back on track earlier in the year, the authorities’ efforts shifted toward expansionary macroeconomic policies and reversed some earlier reforms in an attempt to spur growth.

After the disbursement of one installment, the programme again hit a roadblock when Mr Khan removed then-finance minister Dr Abdul Hafeez Shaikh over SBP law controversy. After a gap of another nine months, the programme was revived again after the government agreed to complete a series of prior actions that had previously missed various deadlines and introduced a mini-budget in December 2021.

The revival again was short-lived as political challenges led prime minister khan to come up with populist measures including significant price cuts and yet another tax amnesty – third under his three-and-half-year rule – despite prior commitments not to again offer such money whitening schemes.

The fund had strongly objected to the government’s justifications for the amnesty scheme and the financial impact and financing sources of the relief package. As a result, the Fund’s mission and the government authorities could not conclude the seventh review of the $6 billion EFF.

Published in Dawn, April 5th, 2022