ISLAMABAD: The International Monetary Fund (IMF) on Thursday said it had reached a staff-level agreement with Pakistan authorities “on policies and reforms needed to complete the second review” of the $6bn Extended Fund Facility (EFF).

The announcement was made by Ernesto Ramirez Rigo, Mission Chief for Pakistan, through a brief statement after a series of engagements with Adviser to the Prime Minister on Finance and Revenue Dr Hafeez Shaikh, Governor of the State Bank of Pakistan Dr Reza Baqir and Finance Secretary Naveed Kamran Baloch through video conference over the last two weeks.

“IMF staff and the Pakistani authorities have reached a staff-level agreement on policies and reforms needed to complete the second review of the authorities’ reform programme supported under the EFF,” said the statement.

The agreement is subject to approval by the IMF management and consideration by its executive board, which is expected in early April. Completion of the review will enable disbursement of SDR 328 million (around $450m), the statement said.

Announcement made by Fund’s mission chief for Pakistan

The Pakistan authorities were tight-lipped over the “policies and reforms needed to complete the second review” but hinted that the two sides had agreed over the fact that some breathing space was required to absorb earlier shocks before further adjustment as higher than estimated inflation had put unexpected pressure on majority of the people.

An official said it was also hoped that an ongoing ease in oil prices would create room for adjustment, a component of which could become part of the next year’s budget. He said full disclosure of agreed upon policy actions could be ‘market sensitive’ and should be left for appropriate time.

Normally, details regarding reviews of IMF-supported programmes are made public after the reviews are approved by the fund’s executive board and staff reports are released. The executive board meeting due for early March has now been postponed for a month until early April.

Some of the outstanding issues under the programme are further adjustment in electricity and gas tariffs and revenue shortfall.

However, the official said the two sides also acknowledged that there was tremendous pressure on the government over energy pricing and challenges faced by the industry. The prime minister has already announced recently that electricity and gas rates would remained unchanged during the remaining four months of the fiscal year.

Another official also linked the flow of positive news from the IMF with encouraging overtures by Washington, including the recent visit of the US commerce secretary to Islamabad and hectic engagements at almost every level of the government including various ministries and the prime minister office and the coming signing of Afghan peace agreement over the next couple of days.

On completion of staff level discussions between February 3 and 13 in Islamabad, the IMF mission had reported considerable progress to have been made in the last few months in advancing reforms and continuing with sound economic policies. “All end-December performance criteria were met, and structural benchmarks have been completed”, the fund had said, adding the steadfast progress on programme implementation would pave the way for the IMF executive board’s consideration of the review.

The IMF felt the macroeconomic outlook remained broadly as expected at the time of the first review and economic activity had stabilised and remained on the path of gradual recovery.

The fund believed the current account deficit had declined, helped by the real exchange rate that was now broadly in line with fundamentals, while international reserves continued to rebuild at a pace considerably faster than anticipated. It expected the inflation should start to see a declining trend as the pass-through of exchange rate depreciation had been absorbed and supply-side constraints appeared to be temporary.

Published in Dawn, February 28th, 2020