The International Monetary Fund (IMF) has reached a staff-level agreement with Pakistan on the second and final review of the $3 billion Stand-By Arrangement (SBA) paving the way for the release of the last tranche from the lender.
This agreement needs approval by the IMF’s Executive Board, upon which the remaining access under the SBA, $1.1 billion, will become available to Pakistan.
An IMF team, led by Nathan Porter, visited Islamabad from March 14-19, 2024, to hold discussions on the second review of Pakistan’s economic program supported by the SBA.
“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 $3 billion (SDR2,250 million) SBA approved in January 2024,”, Mr. Porter said in a statement on Wednesday.
Porter said that Pakistan’s economic and financial position has improved in the months since the first review, with growth and confidence continuing to recover on the back of prudent policy management and the resumption of inflows from multilateral and bilateral partners.
IMF mission chief, however, warned that growth is expected to be modest this year, inflation remains above target, and ongoing policy and reform efforts are required to address Pakistan’s deep-seated economic vulnerabilities amidst the ongoing challenges posed by elevated external and domestic financing needs and an unsettled external environment.
The new government is committed to continuing the policy efforts that started under the current SBA to entrench economic and financial stability for the remainder of this year.
“In particular, the authorities are determined to deliver the FY24 general government primary balance target of Rs 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 global lender.
Mr Porter noted that the State Bank of Pakistan remains committed to maintaining a prudent monetary policy to lower inflation and ensure exchange rate flexibility and transparency in the operations of the foreign exchange market.
Pakistani authorities also expressed interest in a successor medium-term Fund-supported program to permanently resolve Pakistan’s fiscal and external sustainability weaknesses, strengthening its economic recovery, and laying the foundations for strong, sustainable, and inclusive growth, the statement further added.
While these discussions are expected to start in the coming months, key objectives are expected to include:
(i) strengthening public finances, including through gradual fiscal consolidation and broadening the tax base (especially in undertaxed sectors) and improving tax administration to improve debt sustainability and create space for higher priority development and social assistance spending to protect the vulnerable;
(ii) restoring the energy sector’s viability by accelerating cost-reducing reforms including through improving electricity transmission and distribution, moving captive power demand to the electricity grid, strengthening distribution company governance and management, and undertaking effective anti-theft efforts;
(iii) returning inflation to target, with a deeper and more transparent flexible FX market supporting external rebalancing and the rebuilding of foreign reserves; and
(v) promoting private-led activity as well as the removal of distortionary protection, advancement of SOE reforms to improve the sector’s performance, and the scaling-up of investment in human capital, to make growth more resilient and inclusive and enable Pakistan to reach its economic potential.
Very informative article shared
Thank you for valuable information.