IMF programme likely to resume

KARACHI:

Pakistan’s economic fundamentals have continued to remain strong and the unpopular decisions of the government to hike the energy prices in future is likely to get $6 billion International Monetary Fund (IMF) loan programme back on track.

The engagement of the Ministry of Finance and the central bank with the International Monetary Fund (IMF) remains strong.

“In the current political environment, it is no surprise that the unpopular decisions, such as increase in fuel and electricity prices, are proving difficult,” State Bank of Pakistan (SBP) Governor Reza Baqir said in an interview to Bloomberg TV on Monday.

“We are confident that very soon, we will be able to put the delay (in resumption of IMF programme) behind us and announce the good news of attaining the next tranche from the IMF.”

Pakistan has received half of the funding from IMF. It negotiated $6 billion loan package in June 2019 and it has received $3 billion so far. Another $3 billion is left to be received.

“Our goal is to first complete the work which will bring in the remaining $3 billion and after that, if we need (more), we can negotiate it in future,” Governor Baqir said.

IMF is important not just for money but also for the signal that it sends of good housekeeping on the economic policy that catalyses funding from other bilateral creditors as well as private capital markets.

“We are hopeful that with that positive message coming out, we will be able to mobilise funding from other sources other than IMF,” he said.

When domestic political uncertainty was taking toll on local financial markets in the recent past, the central bank considered 250 basis point hike in key policy rate “important to fix the bubble of economic uncertainty,” he said.

It is important that economic policy making institutions act on a timely basis to ensure that the goal of financial stability remains.

“Since the decision (of rate hike), the rupee has rallied nearly 2% and stock market rallied about 1.5% and yields on three and five-year bonds in Pakistan fell about 35 basis points.”

Last year (fiscal year 2020-21), Pakistan’s economy grew by around 5.5%. “Our projection for growth this fiscal year is 4% even with multiple hikes in the interest rate.

Pakistan’s central bank increased the key policy rate by a massive 250 basis points in an emergency meeting as it had “concerns related to price instability and foreign exchange market,”

According to him, there were three main factors that forced the central bank to arrange an emergency monetary policy meeting.

First, uptrend in oil prices has persisted since March and oil futures are about 10-12% higher for next fiscal year.

Secondly, inflation in March for Pakistan was 50-100 basis points higher than the previous month. The headline inflation stood at around 12.7% and core inflation was 9%.

Finally, rupee had lost significantly (over 5%) during the past few weeks owing to political uncertainty, Baqir recalled.

“When we feel that our financial markets are threatened by political instability, we take important steps that are one of the key reasons behind the timing of our (emergency) monetary policy decision last week,” he said.

 

Published in The Express Tribune, April 12^th, 2022.

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