EXTENDED FUND FACILITY

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Context: Staff-level talks between Pakistan and the International Monetary Fund (IMF) concluded for the seventh and eighth review under Extended Fund Facility (EFF).

More on the news:

• The talks were originally aimed at releasing a tranche of $900 million.
• IMF team reached an understanding with Pakistan to release $1.17 billion, subject to the board’s approval.
• This brings the total disbursement under the current EFF to $4.2 billion so far, to support policy actions under FY 2023 budget, power sector reforms, and monetary policy to restrain inflation.

 

What was the Extended Fund Facility (EFF)?

• The 39-month EFF between the two was signed in July 2019 to provide funds amounting to Self-Drawing Rights (SDR) — $4,268 million.
• The EFF was signed by Pakistan to address the medium-term balance of payment problem, and work on structural impediments and increase per capita income.
• The IMF placed demands including fiscal consolidation to reduce debt and build resilience, the market-determined exchange rate to restore competitiveness, eliminate ‘quasi-fiscal’ losses in the energy sector and strengthened institutions with transparency.

 

How important is the IMF support to Pakistan?

• Pakistan’s economic situation is dire.
• According to the Economic Survey of Pakistan 2022, the fiscal deficit in FY 22 was $18.6 billion, and the net public debt at $252 billion, which is 66.3% of the GDP.
• The power sector's circular debt is $14 billion.
• According to the State Bank of Pakistan’s latest report, the current account deficit has peaked to $48.3 billion.

 

Why have the Pakistan-IMF relations remained complicated?

• Structural reforms require long-term commitment, which have been sacrificed due to Pakistan’s short-sighted political goals; hence the urge to go to the IMF for fiscal stability has been repeated over time.
• Pakistan has signed various lending instruments with the IMF, and sought support from IMF around 22 times.
• However, only once has a programme been completed.
• Despite the latest agreement, the road ahead for the IMF and Pakistan is not an easy one.
• Political calculations and the elections ahead will play a role in Pakistan’s economic decision-making.

 

https://indianexpress.com/article/business/imf-funds-for-pakistan-8028220/