In a positive development, the International Monetary Fund (IMF) confirmed on Thursday that its board would meet on September 25 to discuss the $7b Extended Fund Facility (EFF) to Pakistan. Addressing a press briefing, IMF’s spokesperson Julie Kozack said that the Fund had reached a staff-level agreement with Pakistan on the EFF in July and now its board is scheduled to meet following Pakistan obtaining necessary financing assurances from its development partners. She added that consistent policymaking has supported economic stability in Pakistan, most notably a resumption of growth, significant disinflation and a noteworthy increase in country’s foreign reserves.
Going by the fact that staff level agreement was concluded with the Fund in July, delay in approval of the package by the IMF Board was sending negative signals to all stakeholders in Pakistan’s economy and therefore, scheduling of the meeting and encouraging remarks made by the Fund’s spokesperson would go a long way in clearing uncertainty. In fact, entire government machinery was geared towards fulfilment of conditions agreed with the IMF and credit goes to the economic team of Prime Minister Shehbaz Sharif, led by Finance Minister Muhammad Aurangzeb, which is working diligently to tackle all challenges facing the national economy. The situation was really challenging as the country was required to arrange $12b financing from external sources other than the IMF and the Finance Minister achieved the target in a short span of time. It is a matter of satisfaction that traditional friends of Pakistan – China, Saudi Arabia and the United Arab Emirates (UAE) – that were instrumental to help stabilise Pakistan’s economy have again come to the rescue. Reports suggest a breakthrough with the IMF achieved after confirmation of $12b from the KSA, China and the UAE to the tune of $5b, $4b and $3b respectively. Then the IMF identified an external financing gap of $2 to $2.5b and confirmation was secured from the KSA in the shape of Saudi Oil Facility as well as ITFC facility of $400m from Islamic Development Bank and remaining from Standard Chartered Bank and other Middle East-based commercial banks.
People of Pakistan are indebted to all these partners for their timely support to the country. It was in this backdrop that Governor State Bank of Pakistan (SBP) Jameel Ahmad saw no further hurdles and said that Pakistan’s case will be presented to the IMF board during the Sept 25 meeting. Furthermore, the governor stated that any further funding shortfalls were not anticipated, given that the EFF approval would unlock additional financing inflows and improve balance of payments position. This means government economic team would now be able to focus on core issues like structural reforms, economic growth, poverty alleviation and backbreaking inflation. The economy is already moving towards a positive direction as confirmed by improved ratings given by agencies like Moody’s. In a related development, the SBP cut its benchmark interest rate for a third consecutive time on Thursday in an effort to boost economic growth amid decreasing inflation. The SBP lowered the policy rate by 200 basis points, higher than market expectations of 150 bps. After this rate drop, the interest rates hover at 17.5 per cent, the lowest level since January 2023. This prompted the Prime Minister to express optimism that interest rate cut will boost investor confidence and increase investments in Pakistan. Hopefully, lower interest and inflation rates might help boost economic activities in an otherwise depressed environment.
However, much depends on government long term policies that are being strictly monitored and controlled by the IMF and at times these run contrary to our national interest like restriction imposed on establishment of special economic zones and export processing zones, which have special relevance to industrialisation as well as exports. It is a foregone conclusion that the country cannot and should not rely unnecessarily on foreign aid, which comes at a price for its people. We hope the Prime Minister and his team will focus on evolution of a prudent strategy to help the country stand on its own feet.
