WASHINGTON: For the first time since in its months-long negotiations with Pakistan, the International Monetary Fund (IMF) on Friday tied assurances from the country’s external partners with the renewal of its package deal.
Julie Kozack, the Fund’s Director for Strategic Communications, underlined this at a virtual news briefing here, where she also referred to the talks the IMF has been holding with Pakistan.
“Discussions are ongoing between IMF staff and the Pakistani authorities towards a Staff-Level Agreement on policies to complete the ninth review of Pakistan’s extended Fund Facility. Timely financial assistance from external partners will be critical to support the authorities’ policy efforts and ensure the successful completion of the review,” she said.
This could be a major disappointment for Pakistani officials, who hope that an agreement with the Fund on the completion of the ninth review of a $7bn loan programme would come first and would not only lead to a disbursement of $1.2bn, but also unlock inflows from friendly countries.
The IMF official acknowledged that Pakistan’s economy faced multiple challenges, including slowing growth, high inflation, and large financing needs. “And of course, this is all coming on the back of devastating floods, she added.
Ms Kozack also acknowledged that Pakistani authorities were committed to implementing the necessary reforms and had started to implement decisive actions to stabilize the economy and restore confidence.
The talks with Pakistan, she said, also focused on providing space to accommodate the needs related to the floods, including through an increase in social assistance through the Benazir Income Support Program, which aimed at the most vulnerable.
When asked what assurances Pakistan needed from its external partners, the official said: “At this point, ensuring that there is sufficient financing to support the authorities is the paramount priority.”
Explaining the link between these assurances and the IMF deal, Ms Kozack said: “A Staff Level Agreement will follow once the few remaining points are closed. I can also say that financing assurances, right, what we’re looking for here, are a standard feature of all IMF programmes.”
She pointed out that besides IMF’s support, Pakistan’s external fund facility (EFF) supported program receives financing from other multilateral institutions, including the World Bank, the ADB, and the AIIB and bilateral partners, notably China, Saudi Arabia, and the UAE.
“So, we do need to ensure that we have those financing assurances in place in order for us to be able to take the next step with Pakistan,” said the IMF official, making it abundantly clear that Pakistan will need to have those assurances to finalise the deal.
The IMF’s resident representative in Pakistan, Esther Perez Ruiz, has already pointed out that a few remaining points, including a recently introduced fuel subsidy scheme, needed to be settled before a staff-level agreement could be signed.
Talking to Reuters, she said the Fund would ask the government for more details, including how the subsidy would be implemented and what protections would be put in place to prevent abuse.
Since last week, the IMF has been unusually candid in its statements about Pakistan. On Thursday the Fund clarified that the ninth tranche of its EFF programme with Pakistan was not linked to elections.
Decisions regarding the constitutionality, feasibility and timing of the provincial and general elections rest solely with Pakistani institutions,“ IMF’s Resident Chief in Pakistan Esther Perez Ruiz said in her statement.
Her statement came after the Finance Ministry informed the Election Commission of Pakistan (ECP) earlier this week that the country was facing a severe economic crisis and financing the elections at this stage could cause the government to miss IMF targets.
Last week, the IMF also clarified that the IMF does not discuss defence issues with the borrower and that it never raised the nuclear issue in its discussions with Pakistani officials.
Published in Dawn, March 25th, 2023