In News:

Recently, the IMF Executive Board approved a $1 billion disbursement to Pakistan under the Extended Fund Facility (EFF). This brings total disbursements under the current EFF arrangement to $2.1 billion out of a total planned support of $7 billion.

What is the Extended Fund Facility (EFF)?

• Governed by: International Monetary Fund (IMF), part of the Bretton Woods Institutions.
• Purpose: To support countries facing medium-term balance of payments problems caused by structural economic weaknesses.
• Nature of Support:Loan (not a grant or aid), with extended repayment periods.
• Tenure: Typically spans over three or more years, with phased disbursements.
• Objective: Enables countries to implement structural reforms such as:
  • Broadening the tax base
  • Strengthening financial institutions
  • Reducing fiscal deficits
  • Managing inflation

Eligibility for EFF:

To qualify, countries must:

• Exhibit persistent balance of payments stress
• Have deep-rooted economic weaknesses (e.g., poor governance, low investment, weak tax systems)
• Show a willingness to undertake IMF-monitored reforms

Pakistan’s Economic Situation:

• Stagnant GDP: Estimated at $338 billion in 2023, lower than in 2017.
• High Inflation: Averaging over 20% between 2020–2024.
• Frequent Borrowing: Pakistan has received 28 IMF loans in 35 years, and also borrows from:
  • China
  • UAE and Saudi Arabia
  • ADB, IDB, Paris Club, Nordic Development Fund

Key Challenges:

• Economic mismanagement
• Low savings and investment
• Infrastructure gaps
• Low female workforce participation
• High population growth

Why Did IMF Approve the 2025 Tranche?

The IMF approved the tranche based on positive macroeconomic developments:

• Reduced inflation: Down to 0.3% in April 2025
• Improved forex reserves
• Fiscal reforms: Implementation of the FY2025 budget and Agricultural Income Tax
• Credible reform measures: IMF noted Pakistan’s “significant progress” in restoring economic stability.