Announcing the staff-level agreement on the successful completion of the existing short-term facility, the IMF has confirmed that cash-strapped Pakistan is seeking a 24th medium-term bailout package for a permanent push towards longstanding structural reforms. The International Monetary Fund (IMF) in its end-of-mission statement on Wednesday said the cash-strapped country expressed interest in a successor medium-term Fund-supported programme to permanently resolve Pakistan’s fiscal and external sustainability weaknesses, strengthening its economic recovery, and laying the foundations for strong, sustainable, and inclusive growth, Dawn News reported.
It said the global lender’s team reached a staff-level agreement with the Pakistani authorities on the second and final review of Pakistan’s stabilisation programme supported by the IMF’s USD 3 billion standby arrangement approved in July last year. The statement said subject to the approval of its executive board, the staff-level agreement would enable Pakistan to access about USD 1.1 billion — 828 million special drawing rights (SDR) — by late April.
While doing so, the Fund also laid bare the broader, though well-known, conditionalities of the next programme on which discussions are expected to start in the coming months, the statement added. As in the past programmes, four central areas would remain under focus for reforms. The top objective of the next medium-term programme Extended Fund Facility of about 36 to 39 months would be strengthening public finances, including through gradual fiscal consolidation and broadening the tax base, especially in under-taxed sectors (read real estate, retail and wholesale trade and agriculture) and improving tax administration to improve debt sustainability and create space for higher priority development and social assistance spending to protect the vulnerable.
The second objective of the next programme would be restoring the energy sector’s viability by accelerating cost-reducing reforms, including 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. The third key objective is returning inflation to the target, with a deeper and more transparent flexible foreign exchange market supporting external rebalancing and rebuilding foreign exchange reserves.
The fourth and last critical aim would be promoting private-led activity through the actions mentioned above 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 investment in human capital to make economic growth more resilient and inclusive and enable Pakistan to reach its economic potential. The IMF staff-level agreement recognised the strong programme implementation by the State Bank of Pakistan and the caretaker government in recent months, as well as the new government’s intentions for ongoing policy and reform efforts to move Pakistan from stabilisation to a strong and sustainable recovery.
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, the IMF mission chief to Pakistan, Nathan Porter, noted. However, growth is expected to be modest this year and inflation remains well above target, Porter said.
Porter emphasised that ongoing policy and reform efforts were 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 mission also welcomed the new government’s commitment to continue the policy efforts that started under the current bailout package to entrench economic and financial stability for the remainder of this year.
In particular, the authorities recommitted to delivering the fiscal 2024’s general government primary balance target of Rs401 billion (0.4per cent of GDP), with further efforts towards broadening the tax base and continuing 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 accumulation in the ongoing fiscal year. The State Bank also reaffirmed to the IMF that it would maintain a prudent monetary policy to lower inflation and ensure exchange rate flexibility and transparency in foreign exchange market operations.
Pakistan’s new finance minister Muhammad Aurangzeb, who assumed charge last week, had said that his priority was to start negotiations with the Washington-based IMF to bail out the country from its financial woes. Last year, the IMF Executive Board approved the USD 3 billion Stand-for c, the term for which is set to expire next month. So far, two tranches have been issued while the last one is pending the review of the conditions set by the lender.
Last year, the timely support by the IMF helped the country to avoid a potential default on its external liabilities.
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