ISLAMABAD – The restoration (with extension) of the Expanded Financing Facility (EFF) program with the International Monetary Fund (IMF), which was interrupted at the end of the mandate of the Pakistani government Tehreek-i-Insaf (PTI), has rejuvenated the hope of an economic recovery from the rigorous efforts of the government in place.
The stimulus would have a positive impact on the economy with a better balance of payments position and an increase in foreign exchange reserves at a time when the country is facing major economic challenges, including widening current account deficit, the depletion of foreign exchange reserves, the depreciation of the currency and the rising inflationary trend, which is currently in double digits.
Economic experts believe that the EFF program could lead to economic stability provided the structural reforms recommended by the IMF are fully implemented. “The 7th EFF review should bring economic stability to the country. However, there was and there is an urgent need to implement the structural reforms in letter and spirit to stabilize the economy and move it towards growth,” the economist and former member told APP. of the Economic Advisory Council (EAC) Sakib Sherani. He also stressed the importance of designing long-term policies, raising incomes and promoting exports to drive sustainable economic growth.
Pakistan’s finance team, led by Finance Minister Miftah Ismail, spent a busy routine in Washington and held several meetings with IMF officials during the penultimate week of April 2022 to put the derailed process back on track and complete the long-awaited 7th review of EFF, which had hurt due to the fund’s concerns over some of the government’s previous decisions. “Based on the constructive discussions with the authorities in Washington, the IMF plans to send a mission to Pakistan in May to resume policy discussions for the completion of the 7th EFF review,” the IMF said in a statement. published following the meetings with Pakistan.
The fund was also requested to increase the funding available to Pakistan from the existing $6 billion and to extend the EFF arrangement until June 2023 as a signal of their commitment to address existing challenges and to achieve program objectives. Miftah told reporters in Washington that the fund was asked, and agreed, to extend that program for another year. The talks focused on the subsidies provided by the previous government and the IMF considered them unsustainable. The fund also expressed concern about the widening current account deficit.
The EFF program could lead to economic stability provided that structural reforms recommended by the IMF are fully implemented
Economic experts are of the opinion that it was necessary to design long-term policies to alleviate the country’s dependence on external debt, but they consider the current IMF program to be imperative to support the country’s economy.
“We can bring economic stability with the help of external debt, but it was necessary to design long-term policies for sustainable economic growth,” said former Minister of State for Finance Salman Shah. He feared, however, that the IMF program would stoke inflation and lead to higher prices for oil and other commodities.
It is worth mentioning that the IMF had approved the 6th tranche of the MEPC in the first week of February and provided Pakistan with SDR 750 million (about $1,059 million), bringing the total disbursements under the MEPC to about $3,027 million. of dollars. The fund had approved a three-year, $6 billion loan facility for Pakistan in July 2019 to help revive the country’s struggling economy. The 7th review could not be completed by the previous government due to political problems inside the country and a disagreement with the fund over the awarding of certain grants and consequently impacted the economy.
Shortly after taking power, the incumbent government approached the fund to revive the program and made successful efforts to get it back on track. However, maintaining the process and completing the program on time is necessary to have a positive impact on the economy. The IMF package could only be useful when the government implements the fund’s structural reforms, said another economist, Akbar Zaidi, adding that there could be inflation problems, but efforts should be made. to raise incomes to help the economy stand on its feet.