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IMF may discuss 'flood relief package' for Pakistan

The lender's team will visit Islamabad in November to review the progress on the $7-billion extended fund facility programme

The International Monetary Fund (IMF) is expected to discuss a 'flood relief package' for Pakistan next month to support the struggling economy of the South Asian country, Khaleej Times has learnt.

"An IMF team will visit Pakistan in November for the ninth review of the $7-billion extended fund facility (EFF) programme. Hopefully, it would also discuss a relief package to cover up part of $30-billion losses due to devastating floods in Pakistan," according to a finance ministry official seeking anonymity.

Jihad Azour, director of the Middle East and Central Asia Department at IMF, said that the fund will listen to the Pakistani authorities about their priorities and how the fund can help them [on flood losses].

"We were saddened by the loss of human as well as a livelihood in Pakistan with the flood, and we presented, and we reiterate our condolences for the people of Pakistan," Azour said on Friday at a media briefing in Washington.

"The fund has been very supportive of Pakistan over the last period. We have a programme with Pakistan that has been extended and increased in size. This is to help Pakistan deal with the confluence of shocks starting with the Covid crisis where we provided additional flexibility," he said.

WB, UNDP assessment

In reply to a question on flood losses, Azour said the IMF is waiting for the World Bank and United Nations Development Programme's ongoing evaluations of the flood damage to assess the situation and provide help accordingly.

"Based on this assessment, we will need to update our numbers, and based on our discussion with the authorities, we will also listen to them to see what their priorities are, and how the fund can help," Azour said.

The devastating floods, which left more than 1,700 dead and displaced more than 30 million people, added to Pakistan’s struggling economy, which grew at six per cent during the financial year 2021-22. According to initial estimates, floods caused an estimated $30 billion in economic losses due to a significant reduction in the country's exports, agricultural and industrial outputs, and infrastructure damages, such as the destruction of roads, bridges, rail tracks, and electricity installation, among others.

"We accelerated some of our disbursement to Pakistan recently to absorb the exogenous shocks and the shock of an increase in the price of food and commodity. We had recently completed a review that provided Pakistan with $1.2 billion. Hopefully, we will be fielding a mission in November after the annual meetings to Pakistan in order to start with the authorities preparing for the next review," Azour said.

In August, the IMF approved the seventh and eighth tranches of its revised $7-billion Pakistan programme as the new government of Prime Minister Shehbaz Sharif moved forward on reforms.

Samiullah Tariq, head of research at Pakistan Kuwait Investment Company, said the IMF is likely to extend a support package that will support the country's economy.

"Yes, there should be help from the IMF for flood victims and, ultimately, it will help Pakistan's economy to cover up damages and resume its journey on a growth path," Tariq told Khaleej Times.

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GDP growth slips to 3.5%

In its World Economic Outlook 2023 – Countering the Cost-of-Living Crisis, the IMF forecast Pakistan’s GDP growth rate at 3.5 per cent and inflation at around 20 per cent. However, it clarifies that the 2022 projections for Pakistan are based on information available as of August and do not include the impact of the recent floods.

"The fund projected Pakistan’s current account deficit at 2.5 per cent of GDP for the current fiscal year against 4.6 per cent first year and the unemployment rate at 6.4 per cent. As such, all these estimates are based on outdated data that has seen sea-change over the past few weeks," according to the report.

Earlier this month, the World Bank downgraded the growth forecast for Pakistan, expecting its economy to expand by only two per cent in the ongoing financial 2022-23 due to the floods, inflation and troubled finances. The Asian Development Bank also revised its growth outlook for Pakistan to 3.5 per cent last month.

The State Bank of Pakistan, the central bank, in its latest report said that GDP growth could fall to around two per cent in the 2023 financial year, compared to the previous forecast of three to four per cent before the floods.

In August, New York-based rating agency S&P Global revised Pakistan’s long-term ratings from ‘stable’ to ‘negative’ given the spiralling inflation and tighter global financial conditions.

Moody's also projects Pakistan's GDP growth of 0 per cent to one per cent in 2022-23 compared with an earlier forecast before the floods of three per cent to four per cent.

"The floods will affect all sectors, with the impact likely more acute in the agriculture sector, which makes up about one-quarter of the economy," Moody's said.

"Pakistan will remain highly reliant on financing from multilateral partners and other official sector creditors to meet its debt payments, in the absence of access to market financing at affordable costs," Moody's said.