Pakistan is in talks with the International Monetary Fund (IMF) to put the fiscal support program back on track, the country’s central bank governor said, adding that he was optimistic about the economic outlook despite the fallout from the coronavirus pandemic.
With dwindling foreign exchange reserves and a struggling economy, Pakistan entered a three-year $6 billion IMF bailout program in 2019, but is yet to have its second review approved, which has been pending since early last year.
“We hope to have good news for the market and the world that we are putting the program back on track,” Dr Reza Baqir said in an interview on Monday at the Reuters Next conference.
Last year, staff from the IMF and Pakistani authorities reached an agreement to pave the way for a disbursement of $450 million in IMF funds pending approval from the global lender’s executive board, which is yet to take place.
Baqir said there was no disagreement on the end goal between the two sides, and that Pakistan needs to increase its low tax-to-GDP ratio.
Pakistan and the IMF have been working to implement IMF-supported economic reforms, in particular tax collection, aimed at stabilising the economy and shoring up a yawning fiscal deficit.
Though the bailout program is still pending, Pakistan received $1.4 billion in emergency financing from the IMF to allow it to fund targeted and temporary spending increases aimed at containing the pandemic and mitigating its economic impact.
Authorities are counting on the IMF bailout package to bolster Pakistan’s fiscal position and increase global confidence in its economy.
“Pakistani authorities and the IMF team remain closely engaged, discussions are going on, both teams are working very hard and non-stop to bring the program review to positive conclusion,” IMF’s Resident Representative to Pakistan, Teresa Dabán Sanchez, told Reuters.
Covid-19 and vaccine
Baqir also said he is more optimistic about the outlook even as Pakistan battles a second wave of the coronavirus outbreak.
“We are prepared for the challenges that may come about. We are already in the middle of Covid without any vaccine and once the vaccine comes, it will only make this better,” he said
Pakistan’s economy contracted 0.4% in the last fiscal year ended June 30, 2020, as the pandemic disrupted activity.
Baqir added that an economic recovery is underway and the bank’s job is to support the rebound until a vaccine is available.
Pakistan is aiming to achieve 1.5% to 2.5% GDP growth in the current fiscal year, he said.
“I think the next two or three years should bring some good news on the economic front.”