IMF insists on reforms as talks progress for new loan

WASHINGTON: The International Monetary Fund (IMF) emphasised on Thursday that prioritising reforms to revitalise the Pakistani economy outweighs the size of the new loan package being negotiated.

“I think what is important at this stage is to accelerate the reforms, double down on the structure of reforms in order to provide Pakistan with its full potential of growth,” IMF’s Middle East and Central Asia Director Jihad Azour said at a news conference in Washington.

The IMF official’s comment followed Finance Minister Muhammad Aurangzeb’s recent announcement that Pakistan was pursuing a significant, extended loan package with the IMF.

If approved, the proposed three-year package, Pakistan’s 24th with the IMF, could range between $6 to $8 billion, marking the country’s largest loan to date.

While in Washington for the World Bank group’s spring meetings, Mr Aurangzeb emphasised Pakistan’s commitment to entering negotiations for a new agreement with the IMF during discussions with multilateral and bilateral donors.

Aurangzeb rules out sharp rupee devaluation with new bailout programme

Additionally, he reassured the IMF that Pakistan would vigorously implement the reforms pledged in the current programme ending this month and those outlined in the new package.

However, comments from IMF officials suggest that the Fund prefers certain reforms, such as privatising loss-making state enterprises, to be implemented before finalising the next package.

On Wednesday, Pakistan voiced its concerns to the United Nations regarding its exclusion from the IMF’s list of countries eligible for climate support. The finance minister also highlighted this issue during his engagements in Washington.

Ambassador Usman Jadoon, Pakistan’s Deputy Permanent Representative to the United Nations, expressed during a UN meeting on Wednesday, “Yet, we were deeply disappointed to discover that we were neither eligible for the IMF ‘food shock window’, nor its Poverty Reduction and Growth Trust (PRGT).”

Mr Jadoon underscored Pakistan’s expectation of automatic inclusion in any mechanism established for international support, considering the country’s significant challenges posed by the changing climate.

During his discussions in Washington to attend the IMF and the World Bank spring meetings, the finance minister highlighted the government’s measures to strengthen the economy.

Rupee devaluation

In an interview with the Bloomberg news agency on Thursday, he clarified that a new IMF deal would not lead to rapid rupee devaluation.

He added that there would be no reason for the rupee to depreciate more than the range of about 6pc to 8pc in a typical year. Pakistan last devalued its currency in January 2023.

The minister said that while massive devaluations had accompanied some previous IMF loans and are often a condition of the lender’s programme, nothing comparable should be necessary this time.

“I don’t see the need for any step change,” Aurangzeb said, citing solid foreign exchange reserves, a stable currency, rising remittances and steady exports. “The only thing which can be a wild card, although in our projections we should be okay, is the oil price,” he said.

He said the government was looking to bolster industries, including agriculture and information technology, hoping it would help push the nation’s growth above 4pc in the coming years.

The Bloomberg report pointed out that Pakistan faced about $24bn in external financing needs in the fiscal year starting July. The finance minister, however, said Pakistan was in a “relatively good shape” to make those payments.

He further said that Pakistan expected an IMF mission to visit in May and would like to reach a staff-level agreement on the next loan by the end of June or early July, without specifying how much the country was seeking.

Earlier, the minister also met with US State Department officials Donald Lu and Elizabeth Horst, during which the latter reaffirmed Washington’s commitment to bolstering ties between the two countries.

A statement issued by the finance ministry early on Wednesday said Assistant Secretary Lu, and Deputy Assistant Secretary for Pakistan Horst met the finance minister at the WB headquarters in the US capital, “reaffirming Washington’s commitment to bolster Pak-US ties”.

The ministry said that the meeting focused on upgrading economic partnerships, with an emphasis on alternative energy, agriculture, climate resilience and the tech industry.

Aurangzeb briefed the US diplomats on Pakistan’s reform agenda, which includes broadening the tax base, streamlining the energy sector and privatisation.

“Identified American investment opportunities in information technology, renewables, agriculture and minerals extraction. Pakistan pledges close collaboration with US International Development Finance Corporation & Exim Bank for mutual development,” the finance ministry said.

Earlier, the finance minister also met the WB-IMF Pakistan Staff Association and briefed them about the country’s reform agenda.

Published in Dawn, April 19th, 2024