IMF agrees to disburse $1.1 billion to Pakistan

ISLAMABAD – Pakistan and International Monetary Fund (IMF) have reached a staff level agreement on the second and final review under Standby arrangement. This came during meetings between Pakistani authorities and the IMF team led by Nathan Porter in Islamabad. Pakistan will receive 1.1 billion dollars after approval from the IMF’s Executive Board.

“Upon the approval of the IMF’s Executive Board, Pakistan will have access to SDR 828 million (around US$1.1 billion),” IMF team leader Nathan Porter said in a press statement on the conclusion of a six-day talks between Pakistan and the Fund’s officials. 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 programme supported by an IMF SBA.

Porter, in the statement, said the Fund team reached a stafflevel 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. “This agreement is subject to approval by the IMF’s Executive Board, upon which the remaining access under the SBA, US$1.1 billion (SDR 828 million), will become available.”

Acknowledging the measures taken by Pakistan to stabilise the national economy, he said “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.”

However, he said, growth was expected to be modest this year, and, “Inflation remains well above target, and ongoing policy and reform efforts are required to address Pakistan’s deepseated economic vulnerabilities amidst the ongoing challenges posed by elevated external and domestic financing needs and an unsettled external environ­ment.” He said the newly elected government was committed to continue the policy efforts that started under the current SBA to entrench economic and finan­cial stability for the remainder of this year.

In particular, he said, the au­thorities were determined to deliver the FY24 general gov­ernment primary balance tar­get of Rs401 billion (0.4 percent 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 Fiscal Year 2024.

“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 FX market,” he added.

Porter further said the au­thorities also expressed inter­est in a successor medium-term Fund-supported program with the aim of resolving Pakistan’s fiscal and external sustainabil­ity weaknesses permanently, strengthening its economic re­covery, and laying the founda­tions for strong, sustainable and inclusive growth.

While these discussions are expected to start in the coming months, key objectives are ex­pected to include strengthen­ing public finances, including through gradual fiscal consoli­dation and broadening the tax base (especially in under-taxed sectors) and improving tax ad­ministration to improve debt sustainability and create space for higher priority development and social assistance spending to protect the vulnerable.

The other objectives of the dis­cussion include restoring the en­ergy sector’s viability by accel­erating cost-reducing reforms 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; returning inflation to target, with a deeper and more transparent flexible forex mar­ket and supporting external re­balancing and the rebuilding of foreign reserves.

Besides promoting private-led activity through the above-men­tioned actions as well as the re­moval of distortionary pro­tection, advancement of State Owned Enterprises (SOEs) 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 would come under dis­cussion.__The Nation