File photo. Saul Loeb—AFP
The International Monetary Fund (IMF) on Tuesday announced it has reached a staff-level agreement with Pakistan on the second and final review of the ongoing $3 billion Stand-By Arrangement (SBA), setting the stage for release of the last tranche of $1.1 billion 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 stabilization program supported by the IMF’s $3 billion (SDR2,250 million) SBA approved in January 2024,” said Nathan Porter, the head of the IMF team that visited Pakistan from March 14-19, in a statement. “This agreement is subject to approval by the IMF’s Executive Board, upon which the remaining access under the SBA, $1.1 billion (SDR 828 million), will become available,” he added. According to the statement, the Executive Board would take up the matter in late April.
Thanking Pakistani authorities, the private sector, and development partners for “fruitful discussions” and cooperation during the mission’s visit, Porter noted that Pakistan’s economic and financial position had improved since the first review, thanks to prudent policy management and the resumption of inflows from multilateral and bilateral partners.
“However, growth is expected to be modest this year and inflation remains well 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,” he warned.
Acknowledging the new government’s commitment to continue the policy efforts started under the current SBA to “entrench economic and financial stability” for the rest of the year, the IMF mission chief said incumbent authorities were “determined” to deliver a primary balance of Rs. 401 billion (0.4% of GDP) at the end of the ongoing fiscal year. Additionally, he said, the government would strive to broaden the tax base and prevent any further accumulation of circular debt 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.”
On the monetary policy, he said the State Bank of Pakistan was committed to working toward lowering inflation and ensuring exchange rate flexibility and transparency in the operations of the FX market.
Noting authorities had expressed interest in a new medium-term IMF loan to “permanently” resolve Pakistan’s fiscal and external sustainability weaknesses, strengthen its economic recovery, and lay the foundations for strong, sustainable, and inclusive growth, Porter said discussions on this would start in the coming months.
However, he detailed key objectives of a potential new deal in his statement: “(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 through the above mentioned actions 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.”