Pakistan fails to ask G20 for relief

IMF resident representative says inflation will remain in double digits this year

ISLAMABAD: Contrary to claims made by a few ministers about securing a substantial debt relief, the International Monetary Fund (IMF) resident representative said on Monday that Islamabad had not made an official request to G20 countries for payment relaxation.

Teresa Daban Sanchez, IMF Resident Representative, also said that inflation in Pakistan would remain in double digits this year due to inflationary expectations and expected revision in prices.

She did not take sides in an ongoing tug of war between the State Bank of Pakistan (SBP) and the finance ministry on the issue of removing the central bank governor from the SBP board.

Sanchez was speaking about Pakistan-IMF relations in the aftermath of Covid-19 at a webinar organised by the Sustainable Development Policy Institute (SDPI).

Pakistan has neither made any official request to G20 countries nor has it made any announcement in this regard, she said. She was responding to a question about the quantum of debt relief for Pakistan from the G20 countries.

Sanchez said only those countries could avail debt relief that had made requests for forbearance to the G20 nations - the club of 20 big economies of the world.

False news was fed to the electronic media that Pakistan would secure $12 billion worth of relief, although a story published in The Express Tribune stated that Islamabad could avail debt relief of $1.5 billion at best.

Foreign Minister Shah Mehmood Qureshi had claimed that Pakistan had secured a substantial debt relief from the G20 countries. But Finance Adviser Dr Abdul Hafeez Shaikh and Economic Affairs Minister Makhdoom Khusro Bakhtiar did not make any announcement.

Bakhtiar also did not respond to a question sent by The Express Tribune on Monday, asking whether Pakistan had a plan to seek debt relief.

On April 15, the G20 nations announced a freeze on debt repayments by 76 countries including Pakistan only from May to December 2020, subject to the condition that each country makes a formal request.

Sanchez also spoke at length about near-term prospects for Pakistan’s economy and the policies it needed to implement to put the $6-billion IMF loan programme back on track.

Inflation would still be in double digits because of inflationary expectations and prices being revised sometimes down the line, said the IMF resident representative.

Advice for central bank

The IMF country representative said monetary accommodation also needed to commensurate with inflation that was still in double digits.

She advised the central bank to limit interventions in the exchange rate market to only disorderly market conditions after the SBP pumped dollars to stop a sharp decline of the rupee against the US dollar.

The rupee had fallen to 170 to a dollar but gradually recovered to Rs163.49 in the past few days. To a question about Pakistan’s response to the Covid-19 and its implications for the economic health, the resident representative said “fiscal and SBP measures must be targeted and temporary”.

The relaxation in regulations by the SBP should not continue forever and the construction sector support package was also supposed to be temporary, she said.

Sanchez said the outward capital flight would continue but hoped that hot foreign money would start coming back once stability returned to global markets. She clarified that the risky hot foreign money was never part of the IMF programme.

The SBP had encouraged risky inflows of hot foreign money that once surged to $3.4 billion but the moment markets panicked, about $2.6 billion of hot foreign money returned from where it came.

She declined to comment on the fate of the Extended Fund Facility (EFF) after the IMF board delayed approval of the third loan tranche of $435 million on April 10. But she said the government and the IMF had to sit together and agree to new targets. She repeatedly made it clear that there would not be reversal of reforms introduced under the 39-month programme. “We will complete the second review as soon as it is possible.”

She also reiterated that the circular debt reduction plan remained an integral part of the IMF programme and its implementation was crucial for reducing fiscal risks.

Questions were also asked about proposed amendments to the SBP Act of 1956 that had created differences between the Q-block and the SBP.

“I do not have an opinion,” said Sanchez, when asked whether the IMF supported an independent chairman of the SBP board instead of it being headed by the SBP governor.

The Ministry of Finance has proposed that in order to ensure check and balance the SBP board chairman should not be the governor of the central bank. The SBP law needs changes in line with international best practices and “we need to wait until work on SBP amendments is done”, said the country head.

“I do not know whatever is proposed in the SBP law is line with the expert advice given by the IMF,” she added.

Published in The Express Tribune, April 21^st, 2020.

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