EUR 9.34 For Business Accounts Only

Pakistan Strategy: Another round on the IMF rollercoaster

• Sticking with the trend established in previous programs, the release highlighted some structural benchmarks, namely: 1) Budget FY20 aims to limit primary deficit to 0.6% of GDP, 2) support autonomy of SBP to continue stabilization measures, 3) improve tax collections, administration and modernization of public finance management framework, and 4) long term goals of continued stability measures enacted prior to this program, accompanied by moves to maintain institutional autonomy.
• Confirming the much-awaited staff-level agreement, the IMF in a press release issued yesterday laid out the ‘bare-bones’ of the upcoming 39 months, US$6bn EFF program, taking Pakistan’s cumulative loan limit quota to 435%
• Two aspects included in the press release create a benchmark for GoP policy actions over the coming months, namely: 1) cutting the primary deficit (as opposed to the traditional fiscal deficit metric), leading to a pruned FY20 Budget, where the PTI-led Govt is forced to balance political commitments against budgetary metrics, and 2) continued monetary tightening, austerity and managing external deficits as the Fund mentions measures already adopted by the GoP to stem macro-weaknesses, while calling for long term reforms (NFC award negotiations, market-based exchange rates).
• Even though the current funding amount remains at the lower-end of market expectations, we believe the IMF’s desired ‘stamp of approval’ and associated positives arising from meeting any structural benchmarks (one of which mandates rollover of short term funding facilities), and moving ahead with the review mechanisms (quarterly staff reviews, with criteria and accordance mentioned) characteristics of EFF programs, should open doors to other modes of financing (multi/bi-lateral financing, public markets).

   AKD Research