Fund visit reaffirms economic reforms and trust

Speculations surrounding the International Monetary Fund (IMF) delegation’s unscheduled three-day visit earlier this month, following the approval of a $7 billion bailout package in late September, were dismissed as baseless by the government and some experts. A corporate platform welcomed the visit, viewing it as a positive signal.

The first formal review of the Extended Fund Facility (EFF) is due in March 2025.

Finance Minister Muhammad Aurangzeb rejected the perception that the IMF’s early visit indicated distrust in the government or discomfort with the pace of agreed reforms and policy decisions. “There were no specific concerns. It was a routine visit, part of the IMF’s standard practice for countries with active programmes. The mission reviewed updates on benchmarks and key targets,” he clarified in response to a query.

Addressing media reports citing concerns raised by the donor over the Saudi oil facility set to expire by the end of this calendar year. Mr Aurangzeb confirmed,

“We are actively working with Saudi authorities on this matter.” Regarding progress in bridging the $2.5b external financing gap for the current fiscal year, the Finance Minister reas-sured, “Arrangements with bilateral creditors, including the Kingdom of Saudi Arabia, the United Arab Emirates and China, are firmly in place and proceeding smoothly.”

Dr Reza Baqir, former Governor of the State Bank of Pakistan, who worked with the IMF for 18 years, considered the controversy over the IMF staff visit trivial. “To my knowledge, there was nothing unusual about the visit. The IMF previously conducted quarterly reviews, but now follows a semiannual review schedule. Between these reviews, it’s standard practice of the IMF to conduct ‘staff visits’ to monitor progress on meeting conditionalities,” he explained.

We are encouraged by the authorities’ reaffirmed commitment to the economic reforms supported by the 2024 EFF,“ Nathan Porter, the chief of the IMF’s Pakistan mission, who led the talks, said in a statement.

The constructive discussions on eco- t nomic policy and reform efforts to reduce vulnerabilities would help to lay the basis for stronger and sustainable growth, he added.

Prominent business leaders in Pakistan have voiced strong support for the IMF, viewing it not only as a key partner in addressing the country’s external sector crisis but also as an essential source of economic oversight. Given the weakness of local institutions and the political leadership’s tendency to deviate from sound economic planning and policy under public and special interest pressures, the IMF’s guidance and control are seen as critical for maintaining fiscal discipline and steering economic reforms.

Ehsan Malik, CEO of Pakistan Business Council, highlighted the importance of strengthening ties with the IMF during the current challenging period. “For this pro-gramme to be Pakistan’s last with the IMF, it is essential to ensure that key deliver-ables are met on time. Like any borrower-lender relationship, consistent and effective communication between both sides is crucial,” he emphasised.

“Face-to-face interaction between the IMF team and the Finance Ministry is a positive development, reflecting growing confidence and trust. The IMF’s visil offered a valuable opportunity to discuss strategies for getting tax revenue back or track, to explore plans for restarting priva tisation and to seek reassurance regard ing the fiscal agreement with the provinces,” he noted.

“It is crucial to recognise that, in addi tion to providing financial support, the IMF also offers valuable technical assistance The government would have sharec updates on its ongoing progress in main taining macroeconomic stability Therefore, I view the IMF’s unschedule evaluation as a positive development rather a cause for concern,” Mr Malik emphasised.

According to information gathered from sources who have been part of engagements with the donor, the regular reviews in a programme are part of an agreed-upon timetable to ensure compliance with targets and policies. The unscheduled visits by the IMF staff are uncommon and occur in case of economic shocks leading to significant deviations if evidence of straying from the agreed path surfaces or on clients’ requests to renegotiate terms or seek additional support.

“While the IMF normally sticks to scheduled evaluations to ensure predictability, unscheduled visits are within its mandate if circumstances demand them. These visits are typically focused on addressing immediate concerns rather than routine assessments,” a source remarked.

Earlier last week, Finance Minister Aurangzeb commented on the negotiations with the IMF, noting, “We discussed reforms in taxation, energy sector, privati-sation of loss-making state-owned enterprises and public finance.” This highlights the government’s focus on addressing key structural issues as part of its economic strategy to align with the IMF’s advice for continued financial support.

After concluding the visit, Nathan Porter, head of the IMF’s Pakistan mission, who led the talks, expressed optimism in a statement, saying, “We are encouraged by the authorities’ reaffirmed commitment to the economic reforms supported by the 2024 EFF.” He added, “The talks aimed to reduce vulnerabilities and lay the foundation for stronger and sustainable growth.”

Published in Dawn, The Business and Finance Weekly, November 25th, 2024