The International Monetary Fund’s (IMF) decision comes at the request of Pakistan, which faces an urgent balance of payment crisis. This is in addition to the USD 6 billion bailout package that Islamabad signed with the IMF in July last year to stave off a balance of payment crisis.
“The outbreak of COVID-19 is having a significant impact on the Pakistani economy,” said Geoffrey Okamoto, the IMF’s First Deputy Managing Director and Acting Chair.
The domestic containment measures coupled with the global downturn are severely affecting growth and straining external financing which has created an urgent balance of payments need, he said.
“As the crisis abates, the authorities’ renewed commitment to the reforms in the existing Extended Fund Facility — in particular those related to fiscal consolidation strategy, energy sector, governance, and remaining AML/CFT deficiencies — will be crucial to entrench resilience, boost Pakistan’s growth potential, and deliver broad based benefits for all Pakistanis,” Okamoto said.
Expeditious donor support is needed to close the remaining balance of payments gap and ease the adjustment burden, he added.
Okamoto said that in response to the crisis, the government of Pakistan has taken swift action to halt the community spread of the virus and introduced an economic stimulus package aimed at accommodating the spending needed to tackle the health emergency and supporting economic activity.
“Crucially, the authorities are increasing public health spending and strengthening social safety net programs to provide immediate relief to the most vulnerable,” he said.
“Similarly, the State Bank of Pakistan has adopted a timely set of measures, including a lowering of the policy rate and new refinancing facilities, to support liquidity and credit conditions and safeguard financial stability. In this context, the authorities’ policies should be targeted and temporary,” Okamoto said.
The cash-strapped Pakistan government has been implementing austerity measures to improve the country’s finances. In July last year, Pakistan registered a currency reserve of less than USD 8 billion — enough to cover only 1.7 months of imports.
Pakistan has so far received billions in financial aid from friendly countries like China, Saudi Arabia and the UAE during the current fiscal year.