Pakistan is in talks with the International Monetary Fund (IMF) to put its fiscal support programme back on track, the country’s central bank governor said, adding he was optimistic about the economic outlook despite the fallout from the Covid-19 pandemic.
With dwindling foreign exchange reserves and a struggling economy, Pakistan entered a three-year $6 billion IMF bailout programme in 2019 but is yet to have its second review approved, which has been pending since early last year. “We hope to have good news for the market and the world that we are putting the programme back on track,” Dr Reza Baqir said in an interview on Monday at the Reuters Next conference.
Last year, staff from the IMF and Pakistani authorities reached an agreement to pave the way for the disbursement of $450 million in IMF funds pending approval from the global lender’s executive board, which has yet to take place.
Baqir said there was no disagreement on the end goal between the two sides, and that Pakistan needed to increase its low tax-to-GDP ratio. He said the only discussion was on the timing of reform measures, which would have contractionary effects on the economy and would cause more hardship for people already suffering from a loss of livelihood due to the pandemic, as well as inflation. “We don’t (want to) arrest the promising recovery under way,” he said.
Pakistan and the IMF have been working to implement IMF-supported economic reforms, in particular tax collection, aimed at stabilizing the economy and shoring up a yawning fiscal deficit. Though the bailout programme is still pending, Pakistan received $1.4 billion in IMF emergency financing aimed at containing the pandemic and mitigating its economic impact.
Authorities are counting on the IMF bailout package to bolster Pakistan’s fiscal position and increase global confidence in its economy.
“Pakistani authorities and the IMF team remain closely engaged, discussions are going on, both teams are working very hard and non-stop to bring the programme review to positive conclusion,” the IMF’s Resident Representative to Pakistan, Teresa Dabán Sanchez, told Reuters.
Baqir also said he was more optimistic about the outlook even as Pakistan battles a second wave of the coronavirus outbreak. “We are prepared for the challenges that may come about. We are already in the middle of COVID without any vaccine and once the vaccine comes, it will only make this better,” he said
Pakistan’s economy contracted 0.4% in the last fiscal year ended June 30, 2020, as the pandemic hit. Baqir added that an economic recovery was under way and the bank’s job was to support the rebound until a vaccine was available.
“I think the next two or three years should bring some good news on the economic front,” he said.
Baqir said Pakistan’s growth in its foreign exchange reserves from $7 billion to $13 billion in recent months was not due to borrowing. He said Pakistan needed “a rollover of the support” of friendly countries that had parked money in the bank to shore up reserves, but did not need new loans.
Among those countries is Saudi Arabia, which recently asked Pakistan to repay $2 billion of its loan. Islamabad returned $1 billion to Riyadh in December last year and was to pay another $1 billion this month.
