IMF approves $6.7 bn loan for Pakistan

"Despite the challenges it faces, Pakistan is a country with abundant potential," the IMF said.

ISLAMABAD: Despite suspicions over Pakistan’s ability to implement promised reforms, the International Monetary Fund approved on Wednesday a $6.7 billion loan to allow the country to forestall a balance of payment crisis.

It is the 16^th programme that Pakistan and the IMF have agreed since 1958.

Both parties have a chequered history, with Islamabad earning the reputation of a one-tranche nation - a veiled reference to the country’s track record of taking loans at critical times but abandoning them prematurely, either because a crisis of balance of payments averts or because further disbursements required some tough policy actions.

The Executive Board of the IMF approved a three-year arrangement, Extended Fund Facility (EFF), which will provide a breathing space to Pakistan as it will return the loan over a period of ten years unlike the last Stand-by Arrangement.

Pakistan will immediately receive $540 million of the total amount, which will partially address its debt obligations as the country is scheduled to return over $6 billion to international lenders this year, including over $3 billion to the IMF alone.

The remaining amount will be evenly paid out over the duration of the program, subject to completion of quarterly reviews, said the IMF. The conditions highlight the tough path ahead for the new government that has been obligated to implement tight fiscal and monetary policies, which may hurt some growth prospects.

Among other strong conditions attached with the loan include privatising loss making entities. The government is thus expected to revert to the Council of Common Interests with a list of approximately 71 enterprises that it intends to privatise.

On the other hand, the IMF programme may pave the way for winning loans from other international lenders.

“Despite the challenges it faces, Pakistan is a country with abundant potential, given its geographical location and its rich human and natural resources,” the IMF said.

“The authorities’ program is expected to help the economy rebound, forestall a balance of payments crisis and rebuild reserves, reduce the fiscal deficit, and undertake comprehensive structural reforms to boost investment and growth.”

In his recent article, the former Governor State Bank of Pakistan Shahid Kardar anticipated smooth approval of the programme, linking it with US withdrawal from Afghanistan.

“The US troops will be back at home with fewer casualties than the current apprehension and the Fund staff which designed this programme will get their customary promotions as well as accumulate a tidy sum of frequent flyer points from their regular visits to Pakistan. We couldn’t hope for a more perfect confluence of interests of all potential stakeholders”, he wrote.