Fate of the IMF Facility


The IMF’s announcement that a staff-level agreement has been reached with Pakistan has finally lifted the veil of uncertainty from over the markets. The equity market has been having trouble digesting the 150 basis points increase in the discount rate, dropping like a rock for two days in a row, but the rupee’s steep decline has been arrested, at least for the time being. Now the focus will shift to dotting the Is and crossing the Ts as far as the prior conditions are concerned. That means introducing a supplementary finance bill in the national assembly, increasing the petroleum development levy by Rs4 per month so it reaches the maximum rate of Rs30, auditing all Covid-19 related expenditures and getting the controversial SBP amendment bill passed by parliament.
Completion of these steps will take the matter to IMF’s executive board, which is where the real decision will be taken. It seems most outstanding issues were settled with the rise in the interest rate, otherwise, the Fund would not have announced the staff-level agreement on its website, and what remains is mostly a matter of formality. Hopefully, the government will soon receive the next tranche of the bailout program, approximately $1.1 billion, which will go a long way in strengthening national reserves and bolstering the rupee.
All this is indicative of a subtle yet necessary shift from growth to stability, as is being widely pointed out. The economy is still expected to grow somewhere between 4.5 per cent and five per cent, depending on whose prediction one would like to follow, but the tight monetary policy and beefed-up reserves will keep it from burning out in the process. The government has till the end of December to make sure all conditions are met, which will guarantee the revival of the bailout facility early next year. That is welcome news, and even if the equity market is losing some sleep over the new interest rate environment, it will at least have more clarity as it charts its way forward. Every effort must now be made to make sure that all conditions are met in time.