It was no doubt a happy coincidence, but a coincidence nonetheless, that Pakistani Prime Minister Shehbaz Sharif met International Monetary Fund Managing Director Kristalina Georgieva in New York on the sidelines of the UN General Assembly, a day ahead of the scheduled arrival in Islamabad of an IMF team to carry out the second biannual review of the $7 million Extended Fund Facility. As well as the first review of the $1 billion Resilience and Sustainability Facility. It may be mentioned that the RSF was granted after Pakistan passed its first review last March. It is tied to Pakistan being on an IMF programme, and is liable to be terminated as soon as Pakistan fails the review of its main programme.
Mr Sharif pressed upon Ms Georgieva the need of the IMF to make allowances in this review, and going forward, to allow for the effects of the recent floods on virtually all the Quantitative Performance Criteria set by the IMF. However, the QPCs seem to be holding up, nonetheless, which gives the government a degree of confidence that it will be able to manage to pass the review, and obtain the next tranche of the EFF. There are three areas where the IMF may have to decide about deviations from plan. First are failures to meet the inflation and growth targets. Then the primary balance targets, both because of relief and rehabilitation expenditures and because of expected revenue collection shortfalls. Finally, there will be strain on foreign exchange reserves caused by the failure to export as much rice as planned, and the need to import wheat and sugar. There will be an additional burden, that of rebuilding all the infrastructure and social capital destroyed by the floods.
Pakistan is clearly facing an existential crisis. To insist on financial and fiscal targets in the face of immense loss does not make sense. Worse for the IMF, it could drive the country into reneging on its commitments. There is every sign that the government has borne the huge political cost of obeying the IMF sedulously. It should be noted that it is not a matter of giving the masses relief, but of ensuring the relief and rehabilitation of a large but limited number of people affected by the floods. The goal is not prosperity or even previous levels of poverty, but survival. The IMF must not pretend business is as usual. It must recognize that the country is facing an emergency.
