Pakistan and IMF revive deal to aid struggling economy

22 Nov 21

The International Monetary Fund will resume a $6bn programme with Pakistan it paused in April, following negotiations that took more than a month to complete.

Subject to reforms aimed at bringing about primary budget surpluses, such as closing tax exemptions, the deal will unlock a further $1bn, bringing the total paid out through the programme, agreed in 2019, to just over $3bn.

IMF staff praised the progress Pakistani authorities have made amid the challenge of Covid-19, and more recent struggles with record inflation, which shot up to 9% in recent weeks according to official data.

“Despite a difficult environment, progress continues to be made in the implementation of the… programme,” the US-based institution said.

“All quantitative performance criteria for end-June were met with wide margins, except for that on the primary budget deficit.”

The IMF wants Pakistan to achieve surpluses in order to make the government’s large public debt more sustainable.

The new agreement follows more than six weeks of talks, which took place after several months of the programme being on hold.

Funding had stalled due to issues with the prescribed reforms, but the Washington Post reported tension between US president Joe Biden and Pakistan’s prime minister Imran Khan played a part.

The IMF said GDP growth in Pakistan is set to reach 4% in the current fiscal year, and 4.5% in the next one, and current high inflation is expected to drop as the currency stops depreciating.

The rupee rose in value after the fund’s announcement. IMF staff also urged officials to reform the governance of Pakistan’s large state-owned enterprises, including better government oversight and regular audits.

They added that given the south Asian country’s relative vulnerability to climate change – it ranks among the top 10 countries with the largest damages from climate-related disasters – it needs to drastically reduce its emissions, which are among the world’s highest, and finalise a long-awaited adaptation plan.

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