Government plans to take out another IMF flood loan


Pakistan is considering the option of applying for an emergency loan from the International Monetary Fund as preliminary estimates suggest that devastating floods may have caused nearly 2.5 trillion rupees in losses and the rate of economic growth may slow to only 2% in the current fiscal year. .

The Ministry of Finance’s initial assessment showed that due to supply chain disruptions, the average inflation rate could also accelerate sharply to 26%, well above the 18% projection of the State Bank of Pakistan and the IMF before the floods. at 20%.

The Ministry of Finance has prepared the first estimates of the losses to the economy due to the floods and these figures will be presented today (Thursday) at a meeting attended by other stakeholders, mainly the SBP and the Ministry of Plan. These figures are not final and are subject to change, according to the sources.

“Once the amount of losses is agreed, the government will take the decision to approach bilateral and multilateral creditors for financial assistance,” said Dr. Aisha Pasha, Minister of State for Finance, when told asked if Pakistan was going to get a condition. -free IMF financing facility.

“The news from Pakistan is extremely distressing and my heart goes out to the victims and families affected by the severe flooding,” said Asian Development Bank President Masatsugu Asakawa.

Asakawa said he assured Pakistan that the AfDB stands with those affected in these difficult times and “will continue its support to build resilience and mitigate the impact of the climate crisis.”

Dr Aisha said early estimates suggest the losses to the economy were over 2 trillion rupees as almost everything changed after the floods.

The sources said Finance Minister Miftah Ismail informed the Prime Minister’s Office this week that the Finance Ministry was considering approaching the IMF for an emergency aid package.

He raised the issue of IMF funding at a meeting on the floods, which was also attended by the army chief of staff, General Qamar Javed Bajwa.

Ismail told The Express Tribune on Tuesday that two financing instruments were being considered by the Finance Ministry, but deliberations were at a very early stage and no decision had yet been made to approach the IMF.

In April 2020, the IMF approved $1.4 billion in emergency financing for Pakistan under the Rapid Financing Instrument (RFI) to help the country deal with the consequences of the Covid pandemic. -19.

This unconditional window again appears to be the only option available to Pakistan, as other IMF financing instruments require either prior actions or sound economic fundamentals – which are currently lacking.

Under the ongoing Extended Financing Facility (EFF), the IMF has pledged to provide another loan of almost $3 billion to Pakistan within one year, subject to the passing of the remaining reviews. It is unclear whether the IMF will be ready to divert some of the EFF to the RFI, as the country can get a maximum of $3 billion from the IMF in a year, according to a senior official.

In April this year, the IMF’s Executive Board approved the establishment of a Resilience and Sustainability Trust Fund (RST) to support member countries’ long-term structural reform efforts by channeling SDRs to low-income members and vulnerable middle-income members. But its terms have not yet been finalized.

Flood losses

The sources said early estimates suggest that, from the 5% target, the economic growth rate could slow to just 2% – or 3% reduction in the growth rate – in the current financial year. Classes. The estimated production is lower than the IMF’s pre-flood projections of 3.5%.

Overall, economic losses are estimated at 2.5 trillion rupees, or more than $11 billion, the sources said.

Prime Minister Shehbaz Sharif said the recent floods had caused more damage than the calamity of 2010. Due to the super floods of 2010, the economic growth rate slowed to 2% and economic losses were estimated at 9, $7 billion.

The floods have also caused supply chain issues and the Finance Ministry has estimated that the inflation rate could climb to 26%, compared to the budget target of 11.5%. The IMF had already given a pre-flood forecast of 20% inflation for this fiscal year.

Pakistan has allowed imports of tomatoes and onions from Afghanistan and Iran, and is also considering allowing imports from India.

“More than one international agency has approached the government to allow them to smuggle food items from India across the land border,” Miftah Ismail said on Wednesday.

The government will take the decision to allow imports after consulting its coalition partners and key stakeholders, he added.

Pakistan is already grappling with the problems of rising commodity and oil prices, which pushed year-on-year inflation to 25% in July.

Finance Ministry sources said growth in the agriculture sector could contract by 1.8% from the pre-flood target of 3.9%. The hard blow comes from the important crops, which will experience a contraction of 18% compared to the growth rate of the previous year. Growth in the livestock sector is also estimated at only 2% against an initial target of 3.7%. More than 800,000 animals died from the floods.

The production of cotton, rice and maize is badly affected by the floods and it is also feared that the planting of sugar cane and wheat will also be affected.

Against the annual production target of 11 million bales, it is now estimated that 5.4 million bales of cotton can be produced, indicating serious damage to cash cropping.

Rice production is also expected to decline to 7.8 million tonnes from the target of 8.6 million tonnes. Maize production could be 5.4 million tonnes, against a target of 7.2 million.

Similarly, sugar cane production could be reduced to 70.9 million tonnes against an annual target of 78.6 million tonnes. Wheat production could be maintained at 25.1 million tonnes against a target of 26.3 million tonnes.

Finance ministry sources said the industrial sector’s growth rate could slow to 2.8 percent instead of its target of 5.8 percent. Large-scale manufacturing could grow by 3% instead of the 7.4% target.

The services sector will also be affected by its production due to negative impacts on the agricultural and industrial sectors. The services sector should grow by 3.1% against a target of 5.1%.

Sardar Ayaz Sadiq, the minister of economic affairs, also chaired an emergency session on the initial damage assessment of foreign-financed projects (FFP) on Wednesday.

“The initial damage assessment appears to be reduced to a manageable limit,” according to the ministry.