IMF authorizes $2.8 billion funds for Pakistan

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IMF authorizes $2.8 billion funds for Pakistan

The International Monetary Fund (IMF) has authorized the distribution of additional money to its member countries, including Pakistan, to assist them in dealing with the difficulties posed by the Covid-19 pandemic and to enable the world economy to return to a sustainable development path.

Pakistan is expected to get $2.8 billion in the current month as a result of the revised allocations (August 23). The inflows are expected to push the country’s foreign exchange reserves to a new high of more than $20 billion.

Furthermore, the inflows will not only enhance the country’s ability to pay for imports and service foreign debt, but they will also aid in halting the rupee’s devaluation versus the dollar and other major currencies.

The State Bank said last week (July 27) “in August, Pakistan’s reserve buffers are expected to rise by another $2.8 billion through the IMF’s planned new global SDR (Special Drawing Rights) allocation.”

Previously, the Washington-based lender gave Pakistan $1.4 billion in April 2020 as part of its first worldwide SDR grant to member nations to combat infectious illness. According to an IMF news release, the IMF board of governors authorized a general distribution of SDRs equal to $650 billion (approximately SDR 456 billion) on August 2, 2021, to enhance global liquidity.

“This is a historic decision – the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis,” IMF Managing Director Kristalina Georgieva said in the statement available on its official website. “The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence and foster the resilience and stability of the global economy.”

It will be especially beneficial to the most vulnerable countries dealing with the aftermath of the Covid-19 issue, she added. On August 23, 2021, the general allotment of SDRs will take effect. It went on to say that the newly generated SDRs will be credited to IMF member countries in accordance with their current quotas.

In a post-IMF SDR distribution remark, Arif Habib Limited (AHL) analyst Sana Tawfik stated, “Currently, Pakistan’s quota (percentage of the total) is around 0.43 percent.”

“SBP’s foreign exchange reserves currently stand at $17.82 billion and the (new) inflows can potentially take them past $20 billion – the highest in Pakistan’s history,” Topline Research Director Syed Atif Zafar said in comments on the IMF allocation.

The highest level of SBP reserves was reported in October 2016 at $19.46 billion.

For the last two years, the foreign currency reserves have been increasing owing to strong inflows of worker remittances, improved export profits, and increased investment by non-resident Pakistanis via the Roshan Digital Account (RDA).

The country’s reserves are supplemented by deposits from friendly nations like Saudi Arabia, Qatar, and China, as well as short-term borrowing from commercial banks by the central bank.

Economist Shahid Hasan Siddiqui recently said that almost half of the existing foreign currency reserves of $17.82 billion were  From a four-and-a-half-year high of $18.05 billion in the week ending July 16, 2021, reserves have fallen by approximately $200 million to their present level.

Last week, the central bank predicted that imports will stay high in the current fiscal year, implying that the rise in demand for the US dollar would continue, affecting the rupee-dollar parity and foreign currency reserves.

As a result, the State Bank of Pakistan (SBP) expects the current account deficit to rise to 2-3 percent of GDP in the current fiscal year, up from 0.6 percent in the previous fiscal year, which was a 10-year low.

However, it said that a deficit of 2-3 percent was manageable. It would enable the economy to expand at a rate of 4-5 percent in FY22, up from 4% in FY21.

The rupee’s value fell to a 10-month low of Rs163.89 versus the US dollar in the interbank market on Tuesday, owing to increasing demand for dollars for imports and repayment of foreign debt.

According to the IMF, emerging markets and developing countries, particularly low-income countries, would get approximately $275 billion (SDR 193 billion) of the new $650 billion allocation. “We will also continue to engage actively with our membership to identify viable options for voluntary channeling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve sustainable growth,” Georgieva said.

Read more: https://pakobserver.net/pakistan/

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