IMF says Pakistan needs to overcome trust deficit

The International Monetary Fund (IMF) has acknowledged that Pakistan’s economy faced multiple challenges, including high inflation and interest rates as well as low foreign exchange reserves.

Julie Kozack, the director for strategic communications of IMF, underlined this at a virtual news briefing the other day where she also referred to the talks the IMF had been holding with Pakistan. “And of course, this is all coming on the back of devastating floods.”

She added that the global lender wanted the Pakistan government to initiate economic reforms that would greatly help overcome trust deficit between the two sides.

She said it was important to get assurances from Pakistan’s external partners first before the renewal of the package deal.

“Discussions are ongoing between the IMF staff and the Pakistani authorities towards a staff-level agreement on policies to complete the ninth review of Pakistan’s Extended Fund Facility. Timely financial assistance from external partners will be critical in supporting the authorities’ policy efforts and ensuring the successful completion of the review,” she added.

Julie also acknowledged that Pakistani authorities were committed to the necessary reforms and had started implementing decisive actions to stabilise the economy and restore confidence.

The talks with Pakistan, she said, also focused on providing space to accommodate the needs related to the floods, including through an increase in social assistance through the Benazir Income Support Programme, which targeted the most vulnerable.

When asked what assurances Pakistan needed from its external partners, the official said: “At this point, ensuring that there is sufficient financing to support the authorities is of paramount priority.”

Explaining the link between these assurances and the IMF deal, Julie said: “A staff-level agreement will follow once the few remaining points are closed. I can also say that financing assurances, right, what we’re looking for here, is a standard feature of all IMF programmes.”

She pointed out that besides the IMF’s support, Pakistan’s EFF-supported programme received financing from other multilateral institutions, including the World Bank, the ADB, the AIIB and bilateral partners – notably China, Saudi Arabia, and the UAE.

“So, we do need to ensure that we have those financing assurances in place in order for us to be able to take the next step with Pakistan,” the IMF official said, making it abundantly clear that Pakistan would need to have those assurances for finalisation of the deal.