The IMF will raise $ 6 billion to fund Pakistan’s Reuters funding program

By the hand of Asif Shahzad

ISLAMABAD (Reuters) – The International Monetary Fund (IMF) said on Monday it had reached an agreement with Pakistan to help revive a $ 6 billion $ 6 billion financing program that is facing growing economic challenges for South Asia.

“The Pakistani authorities and the NDF staff have reached an agreement among the staff on the policies and reforms needed to carry out the sixth review,” the NDF said in a statement.

“The agreement is subject to the approval of the Executive Committee, after prior action has been taken, mainly on fiscal and institutional reforms,” he noted.

The sixth revision has been underway since the beginning of the year and by the end of it would be available in special raffle rights of NDF 750 million, or about $ 1 trillion, up from about $ 3 trillion so far, the release says.

Pakistan entered the $ 6 billion and 39-month funding program with the IMF in July 2019, but earlier in the year, funding was halted due to problems with necessary reforms.

Pakistan has been in talks with the IMF for a few months to seek reassurance on the terms of the package.

Financial adviser Shaukat Tarin said last week that Pakistan had to carry out five reforms before the NDF could revive funding, including legislation on central bank autonomy to ensure independence from monetary policy and inflation control, remove tax exemptions and raise energy tariffs.

The NDF provided about $ 1.4 billion in April 2020 to help Pakistan deal with the economic impact of the COVID-19 shock.

The latest agreement was reached after a 45-day discussion between the Ministry of Finance and the IMF, a spokesman for Pakistan’s finance ministry said.

“This will remove a lot of uncertainty,” he said.

Despite the difficult environment, the IMF continues to make progress in implementing the program, adding that “by the end of June all quantitative performance criteria (PCs) were met with large margins, except for the primary budget deficit.”

Pakistan is experiencing a historic currency devaluation, high inflation, current account deficit and foreign reserves. Investors have also become nervous about the outcome of talks between the government and the NDF.

Ahead of the NDF forecast, the central bank warned last week that a larger-than-expected primary deficit would worsen inflation forecasts and likely weaken the economic recovery.

The central bank raised its benchmark interest rate by 150 basis points to 8.75% to cope with inflationary pressures and maintain growth stability.

Inflation rose to 9.2% in October from 8.4% two months earlier, the bank said.

In addition, the demand for cash reserves from commercial banks has risen 1 percentage point, the first such move in more than a decade, in another move to accelerate inflation.