ISLAMABAD: Pakistan and the International Monetary Fund (IMF) Wednesday struck a staff-level agreement on the second and final review under the US $3 billion Stand-By Arrangement paving the way for the release of the last tranche from the lender.
“The IMF team has reached a staff-level agreement with the Pakistani authorities on the second and final review of Pakistan’s stabilisation program supported by the IMF’s US$3 billion (SDR2,250 million) SBA approved in January 2024,” said Nathan Porter, the head of the IMF team that held talks in Islamabad from March 14-19 on the second review.
This agreement needs to be approved by the IMF’s Executive Board. Once approved, the remaining access under the SBA, totaling US$1.1 billion (equivalent to SDR 828 million), will be made available.
The IMF mission chief noted that Pakistan’s “economic and financial position” was improving since the first review due to “prudent policy management and the resumption of inflows from multilateral and bilateral partners”.
However, Porter cautioned that economic growth will continue to be “modest” this financial year due to inflation remaining higher than the target.
He urged for the adoption of existing policies and reforms to tackle Pakistan’s long-standing economic weaknesses amid the persistent challenges stemming from high external and domestic financial requirements and an uncertain global environment.
On the Shehbaz Sharif-led government, the IMF team stated that the new setup is ready to follow the “policy efforts” that were launched in the SBA for the remainder of the year.
“In particular, the authorities are determined to deliver the FY24 general government primary balance target of PRs 401 billion (0.4% of GDP), with further efforts towards broadening the tax base, and continue with the timely implementation of power and gas tariff adjustments to keep average tariffs consistent with cost recovery while protecting the vulnerable through the existing progressive tariff structures, thus avoiding any net circular debt (CD) accumulation in FY24,” said the Washington-based lender.
Porter additionally mentioned that the State Bank of Pakistan is dedicated to implementing a careful monetary policy aimed at reducing inflation and guaranteeing flexibility and transparency in the forex market operations.
The statement also mentioned about a new loan Pakistan is planning to seek from the Fund.
“The authorities also expressed interest in a successor medium-term Fund-supported program with the aim of permanently resolving Pakistan’s fiscal and external sustainability weaknesses, strengthening its economic recovery, and laying the foundations for strong, sustainable, and inclusive growth,” said the IMF.
Porter pointed out key objectives that will be discussed for the new programme with the conclusion of the SBA.
The plan aims to enhance public finances by gradually improving fiscal management and expanding the tax base, particularly in sectors that are currently not taxed enough. Additionally, it aims to enhance tax administration to ensure debt sustainability and allocate more resources to crucial development and social support programs, thereby safeguarding vulnerable populations.
(ii) Reviving the energy sector’s sustainability by speeding up cost-saving reforms. This includes enhancing electricity transmission and distribution, transitioning captive power demand to the electricity grid, improving governance and management of distribution companies, and implementing effective measures to combat theft.
(iii) returning inflation to target, with a deeper and more transparent flexible forex market supporting external rebalancing and the rebuilding of foreign reserves; and
(iv) Encouraging private-sector initiatives through the mentioned measures, along with eliminating unfair protection practices, enhancing reforms in state-owned enterprises to enhance their performance, and increasing investment in human development. These actions aim to foster sustainable and inclusive growth, empowering Pakistan to achieve its economic aspirations.
