The United States announced on Friday a funding of $8.4 million for Pakistan to combat the spread of new coronavirus in the country.

The contribution was announced on US mission’s social media platforms by Ambassador Paul Jones.

An amount of $3m will be utilised to provide three new mobile labs to enable Pakistanis living in virus hotspots to be tested, treated and monitored to stop the spread. High-tech emergency operations centres will be established in Islamabad, Sindh, Punjab, Khyber Pakhtunkhwa and Balochistan under the initiative.

Funding of $2m will be used to train community health workers to assist people in their homes and lessen the burden on hospitals. Life-saving activities among Afghan refugees and in host communities in the country will be carried out at a cost of $2.4m, which will be administered by the UN High Commissioner for Refugees.

Details about the remaining $1m were not spelt out. With the new contributions, the US is collaborating with Pakistan to help stop the spread of Covid-19 nationwide and to care for the affected people. All of these contributions were identified as top priority needs by the Pakistani authorities, and they were fully paid for by the American people, a press release of the US embassy said.

The US ambassador described the contributions as the latest chapter in a long, vibrant US-Pakistan health partnership. It built on US contributions over the past 20 years of more than $1.1bn in the health sector, and more than $18.4bn overall to the US-Pakistan development partnership, Ambassador Jones said. “Together, we can stop the spread of this deadly disease to protect out loved ones and regain our prosperity and freedom,” emphasised the ambassador.

With $1.4 billion upfront breathing space, Pakistan and the Int­ernational Monetary Fund (IMF) have agreed to put on hold the existing $6bn Extended Fund Facility (EFF) and revise it after the Covid-19 pandemic is over as the macroeconomic indicators deteriorate.

“The Rapid Financing Instrument (RFI) is the appropriate instrument to support Pakistan at this juncture as the severity of the shock and the uncertainty about the outlook make it difficult to recalibrate the existing EFF to ensure that it remains on track to meet its objectives,” said a staff report released by the IMF on Friday after its executive board approved $1.4bn fresh support to Islamabad.

“The Rapid Financing Instrument is disbursed in one tranche, at once, upon approval,” said Teresa Dabán Sanchez, the IMF’s resident representative in Islamabad.

The IMF staff believed the RFI would catalyse additional donor financing as it estimated $2bn gap this year and $1.6bn next fiscal year, including the RFI.

The Fund anticipated ‘significant’ near term impact of Covid-19 and said the forecasts were subject to higher than usual uncertainty, but economic activity could contract for the first time since the 1950s.

Real GDP is projected to decline by -1.5pc in FY2020 as a result of severe contraction in output during the last quarter of the current fiscal year. The growth is to remain tepid in the first half of FY2021, depending on the success of efforts to contain the spread of the pandemic in Pakistan and worldwide, and to return gradually to faster growth in the second half of the next fiscal year in line with the expected global recovery.

Extended Fund Facility will be revised after Covid-19 is over as macroeconomic indicators deteriorate

“Cumulatively, real GDP growth has been revised down by 5 percentage points over FY2020-21. Manu­fac­turing, especially textiles, transportation and services are expected to be the sectors more severely impacted. Private sector credit is likely to weaken further due to the heightened uncertainty,” the IMF staff said.

The IMF baseline estima­tes assume a gradual lifting of containment measures and normalisation of economic activity both domestically and internationally in FY2021, but a deeper slowdown cannot be ruled out if these assumptions do not materialise.

The Fund said public finances were expected to come under a significant pressure and primary deficit was now expected to deteriorate to 2.9pc of GDP in FY2020 (from 0.8pc expected earlier) due to a 1.8 percentage point decline in tax revenue relative to the pre-virus baseline, and the needed higher spending to support the health response, social safety nets for the very poor, and employment.

The IMF also anticipated the debt-to-GDP ratio deteriorating to 90pc this year against 85pc prior to the Covid-19 shock. But this showed even the pre-virus debt situation was also worse than debt-to-GDP ratio that stood at 75.3pc and the Fund estimated it reaching 80.5pc in FY2020. The IMF staff concedes this, saying the “public debt is higher than projected at the time of programme approval and the first review but continues to be on a clear downward path”.

The Fund said the Covid-19 shock had given rise to an urgent balance of payments needs even though oil prices and weaker import demand provided some support to the current account. This will be because of a likely halt to export growth due to fall in external demand, $5bn drop in remittances in FY2020 and FY2021 owing to setbacks in the Gulf and outflow of portfolio funds.

This scenario will result in new external financing needs of about $2bn — 0.8pc of GDP — in the last quarter of FY2020. These urgent financing needs will be met through $1.4bn RFI and fresh resources of around $250 million committed by multilateral partners and maintaining SBP reserves at $12bn (2.7 months of imports) by the end of FY2020, a level similar to the one prior to the Covid-19 shock.

Moreover, a potential financing gap of around $1.6bn could emerge in FY2021, which would be filled through the use of reserve assets, additional support from multilateral partners, and, if needed, additional policy adjustments.

The IMF that noted the package for the construction sector would address acute employment needs generated by the lockdown, which included a special tax regime and no wealth declaration for projects launched during a short window until the end of 2020.

To ensure the quality of emergency spending in the health sector, the Fund said, the authorities had committed to subject the procurement of urgently needed medical supplies to an ex-post audit by the Auditor General of Pakistan, the results of which would be published on the website of the Ministry of Finance. “This measure will help limit vulnerabilities to corruption,” it added.

The IMF warned that with growth remaining below potential, risks associated with policy slippages and resistance to reforms, including from vested interest groups, loomed large. This, together with weak implementation capacity, may jeopardise the programme objectives and availability of external financing.

The Fund said it was encouraged by the authorities’ commitment to resuming the EFF, as soon as possible, to implement the agreed reform agenda to support growth and strengthen resilience. “In this regard, the Ministry of Finance and the SBP have committed to update the existing memorandum of understanding that clarifies the responsibilities for timely servicing of the obligations to the Fund,” it added.

Published in Dawn, April 18th, 2020

https://www.dawn.com/news/1550121/govt-imf-agree-to-put-on-hold-6bn-programme