Is EFF for Pakistan under threat?

Pakistan is seeking large scale loans to improve its financial condition. These lenders include countries and also international financial institutions. The International Monetary Fund is also included in these loan providers. The Fund had also given some conditions for the purpose of removing Pakistan from this odd situation and enabling it to repay the loan. But Pakistan has been unable to comply with many of them. So now the International Monetary Fund (IMF) would review Pakistan’s performance under the Extended Fund Facility (EFF) in the last week of September. According to sources, the IMF team is scheduled to visit Pakistan to review the government’s economic performance during the first quarter of the current fiscal year (FY21), besides reviewing pending issues with regard to power tariff adjustments as well as amendments in National Electric Power Regulatory Authority (NEPRA), mobilization of taxes and autonomy of the State Bank of Pakistan (SBP).

When a country faces a serious medium-term balance of payments problems because of structural weaknesses that require time to address, the IMF can assist with the adjustment process under an Extended Fund Facility (EFF). Compared to assistance provided under the Stand-by Arrangement, assistance under an extended arrangement features longer program engagement—to help countries implement medium-term structural reforms—and a longer repayment period. The EFF was established to provide assistance to countries: (i) experiencing serious payments imbalances because of structural impediments; or (ii) characterized by slow growth and an inherently weak balance of payments position. The EFF provides assistance in support of comprehensive programs that include policies of the scope and character required to correct structural imbalances over an extended period.

The Rapid Financing Instrument (RFI) provides rapid financial assistance, which is available to all member countries facing an urgent balance of payments need. The RFI was created as part of a broader reform to make the IMF’s financial support more flexible to address the diverse needs of member countries. The RFI replaced the IMF’s previous emergency assistance policy and can be used in a wide range of circumstances. In response to members’ large and urgent Covid-19-related financing needs, access limits under the regular window of the RFI have been temporarily increased from 50 to 100 percent of quota per year, and from 100 to 150 percent of quota on a cumulative basis, net of scheduled repurchases. The higher access limits will apply for an initial six-month period, from April 6, 2020 to October 5, 2020, and may be extended by the IMF’s Executive Board.

Pakistan has so far received two installments of bailout package from the IMF under the 39-month EFF programme. It may be noted that the third review of Pakistan’s performance could not be held due to Covid-19 outbreak, while the IMF provided Pakistan with $1.4 billion ‘Rapid Financing Instrument’ in April 2020 to cope with the pandemic. According to some sources, the above-stated time-bound action plan is compulsory if Pakistan wants to continue this program. Highlighting some constraints that the economic team may face during the review, sources said presently, one elected and two non-elected people were seeing the matters of the Power Division due to which the government was finding it difficult to build consensus on power sector reforms.

According to the sources the IMF also put emphasis and wanted clarity on how Pakistan plans to improve its revenue in FY21. The Pakistan government had set a revenue target of Rs4,963 billion for FY21 after the approval of IMF but the incumbent FBR chairman, who was appointed for three months, seems only interested in the reshuffling of officials. So there was no comprehensive working on the reform programme despite the IMF as well as World Bank directions.

The condition of mutual coordination between the various departments and ministries of the Government of Pakistan is very obnoxious and this country is suffering its losses in various ways. It also has a role in the current crisis. SBP reforms had stalled due to the central bank and Ministry of Finance’s differences over the proposed amendments in this regard. The IMF had pressed Pakistan to give complete autonomy to SBP in decision making.

In the present situation, there is a great need of money for Pakistan. But due to Pakistan’s lack of fulfilling the requisite conditions, the International Monetary Fund can also stop its assistance and if it happens then the problem can take very serious form for Pakistan.