Pakistan Gets $6.6 Billion Loan from IMF

Pakistan faces slow growth, declining reserves, increasing fiscal deficit

IMF loan aims at preserving economic stability, boosting growth

Program includes measures to protect the most vulnerable and create jobs

The 36-month program under the IMF’s Extended Fund Facility aims at bringing down inflation and reducing the fiscal deficit to more sustainable levels. The program also includes measures to help achieve higher and more inclusive growth, in particular through addressing bottlenecks in the energy sector.

Speaking to the IMF Survey, Jeffrey Franks, the IMF’s mission chief for Pakistan, explains the underlying reasons for the loan and the main ingredients and goals of the IMF-supported program.

IMF Survey: Why does Pakistan need financial assistance from the IMF?

Franks: Pakistan is in a difficult economic situation right now. Central Bank foreign exchange reserves have been falling and the chronic fiscal deficit has been widening. In addition, relatively high inflation and major structural impediments have stalled economic growth. On the top of all these issues, Pakistan does not have good sources of financial support from the international markets at this time and that’s why the government approached the IMF for financial assistance.

Countries normally borrow from the IMF when they have serious balance of payments difficulties. Pakistan is not yet in an economic crisis. The current account deficit of the balance of payments is actually relatively small by international standards—only around 1 percent of GDP. But, even that low deficit has not been adequately financed by capital inflows from abroad. Foreign direct and portfolio investment has been very low. As a result, Pakistan has been losing reserves over time, now reaching a critical low level of less than 1½ months of imports.

To avoid a full-blown crisis and a collapse of the currency, the government decided to seek financial assistance from the IMF. In addition, the World Bank, the Asian Development Bank and other partners have offered significant financial support for the adjustment and reform policies.

IMF Survey: Can you explain what an Extended Fund Facility means and why it’s right for Pakistan?

Franks: The Extended Fund Facility was established by the IMF in 1974 specifically for the countries with the types of problems that Pakistan has. These include inherently weak balance of payments position and chronic structural impediments. The Extended Fund Facility...