ISLAMABAD (May 17) – The rising tensions between India and
Pakistan, if sustained or deteriorate further, could heighten enterprise risks to the fiscal,
external and reform goals of the program. Reputational risks could also come from any
perceived lack of evenhanded or if there was a perceived misuse of Fund 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.
Moreover, disbursements under the EFF are dedicated to build reserves, and the
program’s ambitious fiscal and reserve goals (including floors on social spending) limit
the space for non-priority spending and the use of reserves to finance imports. Given the
RSF’s different purpose, its disbursements are available for fiscal financing, although
there cannot be any disbursements outside of an EFF review and not before completion
of the second review. Careful Fund communication will be essential to underscore the
Fund’s neutral role and avoid misperceptions about its lending activities. ENDs
