Staff level agreement reached with Pakistan: IMF

ISLAMABAD: In an official statement released by a delegation from the International Monetary Fund (IMF) led by Nathan Porter, it was announced that the IMF has reached a preliminary agreement with Pakistan regarding the second and final evaluation of the country’s stabilization program, which is backed by the IMF’s approved US$3 billion (SDR2,250 million) Stand-By Arrangement (SBA).

This agreement is contingent upon approval by the IMF’s Executive Board, following which the remaining portion of the SBA, amounting to US$1.1 billion (SDR 828 million), will be made accessible.

Porter remarked that “Pakistan’s economic and financial situation has shown improvement since the initial evaluation, with growth and confidence continuing to rebound due to prudent policy management and renewed financial support from multilateral and bilateral partners.

However, growth is expected to be modest this year, and inflation remains significantly above target. Sustained policy efforts and reforms are necessary to address Pakistan’s deep-rooted economic vulnerabilities, particularly given the ongoing challenges posed by high external and domestic financing requirements and an uncertain external environment.”

According to the IMF’s official statement, “the new administration is committed to carrying forward the policy measures initiated under the current SBA to solidify economic and financial stability for the remainder of the year. Specifically, the authorities are resolved to meet the FY24 general government primary balance target of PRs 401 billion (0.4 percent of GDP), while also intensifying efforts to broaden the tax base.

Additionally, they will continue implementing timely adjustments to power and gas tariffs to ensure they cover costs, all while safeguarding vulnerable segments of society through progressive tariff structures, thus preventing any net accumulation of circular debt in FY24. The State Bank of Pakistan remains dedicated to maintaining a prudent monetary policy to reduce inflation and ensure exchange rate flexibility, along with transparent operations in the foreign exchange market.”

Moreover, Pakistan has expressed interest in a subsequent medium-term program supported by the IMF, aimed at permanently addressing the country’s fiscal and external sustainability challenges, enhancing economic recovery, and laying the groundwork for robust, sustainable, and inclusive growth.

While discussions on this matter are anticipated to commence in the coming months, the primary objectives are expected to include:

• Strengthening public finances through gradual fiscal consolidation, expanding the tax base (especially in sectors with low taxation), and enhancing tax administration to improve debt sustainability and create room for increased spending on priority development and social assistance programs.
• Restoring the viability of the energy sector by expediting cost-reducing reforms, including improvements in electricity transmission and distribution, integrating captive power demand into the electricity grid, enhancing governance and management of distribution companies, and implementing effective measures to combat theft.
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• Bringing inflation back to target levels, supported by a deeper and more transparent flexible foreign exchange market to facilitate external rebalancing and the replenishment of foreign reserves.
• Encouraging private-sector-led activity through the aforementioned measures, as well as by removing distortionary protectionist policies, advancing reforms in state-owned enterprises to enhance their performance, and increasing investment in human capital to bolster resilience and inclusivity of growth, thereby enabling Pakistan to realize its economic potential.

The IMF delegation expressed gratitude to the Pakistani authorities, private sector, and development partners for their constructive discussions and cooperation during this mission.