Saul Loeb—AFP
Islamabad ‘broadly on track’ with reforms tied to $6.7-billion loan program, says IMF.
The International Monetary Fund says Pakistan is “broadly on track” with reforms tied to a $6.7-billion loan package, but warned on Friday it must act to rebuild its foreign exchange reserves.
The Washington-based lender agreed to the three-year program with Islamabad in September and made an initial payment of $540 million. The package is aimed at reducing Pakistan’s fiscal deficit—which neared 9 percent of gross domestic product last year—and reforming the energy sector to help resolve severe power cuts that have sapped growth potential. Future payments are dependent on the completion of tough economic reforms measured at quarterly reviews.
An IMF team visited Pakistan from Oct. 28 to Nov. 8 for talks with top finance ministry and State Bank of Pakistan officials. Mission chief Jeffrey Franks said the program was “broadly on track,” with all major benchmarks hit apart from foreign exchange reserves, which he said was missed in part due to SBP interventions to prop up the falling rupee. “Challenges on the balance of payments will persist for some time to come, so it is crucial that firm action be taken to begin to rebuild foreign exchange reserves,” he said in a statement.
But there was brighter news for Pakistan on GDP as the IMF revised their growth forecast upward slightly from 2.5 percent to 2.75 percent. Franks and his team will submit a report on Pakistan’s progress to the IMF board for review in late December, and if approved the lender will release the next chunk of $550 million.
Franks said that despite the challenges facing Pakistan, predictions of imminent financial collapse—the “sky is falling mentality,” as he put it—were perhaps excessive. “When growth is going to be positive, inflation is relatively modest compared to many other countries that have been in crisis over the years and a budget deficit that is coming down decisively, we shouldn’t exaggerate the problem,” he told reporters.