WASHINGTON: The International Monetary Fund has approved $1.386 billion disbursement to Pakistan under the Rapid Financing Instrument to address the economic impact of COVID-19 pandemic.
According to a statement, the Executive Board of the IMF approved the funds to meet the urgent balance of payment needs stemming from the outbreak of the COVID-19 pandemic, adding that the near-term economic impact of the pandemic is expected to be significant, giving rise to large fiscal and external financing needs.
The IMF said the funds will provide a backstop against the decline in international reserves and provide financing to the budget for targeted and temporary spending increases aimed at containing the pandemic and mitigating its economic impact.
It added that the global financial institution remains closely engaged with the Pakistani authorities and as the impact of the COVID-19 shock subsides will resume discussions as part of the current EFF.
First Deputy Managing Director and Acting Chair, Geoffrey Okamoto, made a statement after the decision of the executive board, and said the coronavirus outbreak is having a significant impact on the Pakistani economy.
“The domestic containment measures, coupled with the global downturn, are severely affecting growth and straining external financing. This has created an urgent balance of payments need.”
“In this context of heightened uncertainty, IMF emergency financing under the Rapid Financing Instrument provides strong support to the authorities’ emergency policy response, preserving fiscal space for essential health spending, shoring up confidence, and catalysing additional donor support.
He said the government of Pakistan has taken swift action to halt the spread of the virus and introduced an economic stimulus package aimed at accommodating the spending needed to tackle the health emergency and supporting economic activity.
“Crucially, the authorities are increasing public health spending and strengthening social safety net programs to provide immediate relief to the most vulnerable. Similarly, the State Bank of Pakistan has adopted a timely set of measures, including a lowering of the policy rate and new refinancing facilities, to support liquidity and credit conditions and safeguard financial stability. In this context, the authorities’ policies should be targeted and temporary.”
“As the crisis abates, the authorities’ renewed commitment to the reforms in the existing Extended Fund Facility—in particular those related to fiscal consolidation strategy, energy sector, governance, and remaining AML/CFT deficiencies—will be crucial to entrench resilience, boost Pakistan’s growth potential, and deliver broad-based benefits for all Pakistanis.”
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