The International Monetary Fund (IMF) said that the rising tensions between Pakistan and India, if sustained or deteriorate further, could heighten enterprise risks to the fiscal, external and reform goals of the Extended Fund Facility (EFF) program.
The IMF has released its latest report on the “First Review under the Extended Fund Facility (EFF)” and “Resilience and Sustainability Facility (RSF).”
The IMF said that reputational risks could also come from any perceived lack of evenhandedness or if there was a perceived misuse of fund’s disbursements.
“As mitigants, the Pakistani authorities have reiterated their strong commitment to the program, which is designed to help restore economic stability, build resilience through stronger reserve buffers, and advance reforms to create stronger and inclusive growth,” the report said.
In the aftermath of a deadly attack on tourists in Indian-occupied Kashmir, News Delhi had banned the import of goods coming from or transiting via Pakistan and barred Pakistani ships as tensions rose between the nuclear-armed neighbours.
Pakistan’s retaliatory measures have included halting all border trade, closing its airspace to Indian carriers, and expelling Indian diplomats.
Last week, Pakistan’s Finance Minister Muhammad Aurangzeb said in an interview with Reuters that the recent military escalation with India won’t have a large fiscal impact on Pakistan and can be managed within the current fiscal space, with no need for a new economic assessment.
Regarding the conflict, Aurangzeb described it as a “short duration escalation” with minimal fiscal impact, stating it can be “accommodated within the fiscal space which is available to the government of Pakistan”.
When questioned about potential increased military spending in the upcoming budget, Aurangzeb deferred comment, saying it was premature to discuss specific plans. However, he said: “Whatever we need to do in terms of ensuring that our defence requirements are met will be met.”
Aurangzeb said he expects the Indus Water Treaty, which India unilaterally suspended, to be reinstated and rolled back to where it was.
He said there is not going to be any immediate impact from India’s suspension and Pakistan does not “even want to consider any scenario which does not take into account the reinstatement of this treaty”.
