ISLAMABAD.: Pakistan and the International Monetary Fund have reached a staff-level agreement on completion of the first review of the $6 billion programme, as the Fund sees steady signs of economic stability and slight slowdown in pace of inflation.
The IMF has cut its inflation forecast for Pakistan from 13% to 11.8% for this fiscal year 2019-20. But it has kept the overall macroeconomic projections largely unchanged.
Pakistan and the IMF mission reached the agreement on the first review under the Extended Arrangement (EFF), which, subject to the Executive Board meeting, would pave the way for release of $450 million second loan tranche on December 19th.
All performance criteria for end-September were met with comfortable margins and progress continues towards meeting all structural benchmarks, the IMF stated in a handout issued at the conclusion of the talks.
Pakistan met the conditions on net international reserves, reduction in net foreign currency swaps, reduction in primary deficit, zero borrowing from the central bank and cap on issuance of new sovereign guarantees.
An IMF mission led by Ernesto Ramirez Rigo visited Islamabad from October 28 to November 8, 2019 to conduct the first review under the EEF. The government’s policies have started to bear fruit, helping to reverse the build-up of vulnerabilities and restore economic stability, said the IMF.
The external and fiscal deficits are narrowing, inflation is expected to decline, and growth, although slow, remains positive, it added. However, it said that sustaining sound policies and advancing structural reforms remain key priorities to enhance resilience and pave the way for stronger and sustainable growth.
The IMF stressed the need for implementation of the Financial Action Task Force action plan, and implementing structural reforms and advancing power sector reforms, as committed by Pakistan with the international lenders.
“The Pakistani authorities and IMF staff have reached a staff-level agreement on policies and reforms needed to complete the first review under the EFF. The agreement is subject to approval by IMF management and the Executive Board of Directors,” Rigo said.
Completion of the review will enable disbursement of SDR328 million or around $450 million and will help unlock significant funding from bilateral and multilateral partners, Rigo, the IMF’s Mission Chief to Pakistan, added.
“The near-term macroeconomic outlook is broadly unchanged from the time of the programme approval, with gradually strengthening activity and average inflation expected to decelerate to 11.8% in fiscal year 2019-20.”
However, domestic and international risks remain, and structural economic challenges persist.