Saul Loeb—AFP
The International Monetary Fund (IMF) on Wednesday announced it has reached a staff-level agreement with Pakistan on the first review under the $3 billion Stand-By Arrangement (SBA) inked earlier this year, paving the way for a release of $700 million after the approval of the IMF’s Executive Board.
In a statement, the global lender said the agreement supported “authorities’ commitment to advance the planned fiscal consolidation, accelerate cost-reducing reforms in the energy sector, complete the return to a market-determined exchange rate, and pursue state-owned enterprise and governance reforms to attract investment and support job creation, while continuing to strengthen social assistance.”
“The IMF team has reached a staff-level agreement (SLA) with the Pakistani authorities on the first review of their stabilization program supported by the IMF’s $3 billion SBA,” read a statement issued by Nathan Porter, who led the IMF team that has spent the past two weeks in negotiations with government officials. “The agreement is subject to approval of the IMF’s Executive Board. Upon approval, around $700 million will become available bringing total disbursements under the program to almost $1.9 billion,” he said.
Per the statement, Pakistan’s economy is on the path to recovery, thanks to the stabilization policies under the SBA and international partners’ support and signs of improved confidence. “The steadfast execution of the FY24 budget, continued adjustment of energy prices, and renewed flows into the foreign exchange market have lessened fiscal and external pressures,” it said, adding inflation was expected to decline in coming months. However, it warned, Pakistan remains susceptible to external risks, including the intensification of geopolitical tensions, resurgent commodity prices, and a further tightening in global financial conditions.
To achieve resilience, read the statement, strengthening macroeconomic sustainability and laying the conditions for balanced growth were key priorities under the SBA. Listing the government’s policy priorities, it said these included continued fiscal consolidation to reduce public debt, while protecting development needs. “The authorities are determined to achieve a primary surplus of at least 0.4% of GDP in FY24, underpinned by federal and provincial government spending restraint and improved revenue performance supported, if necessary, by contingent measures,” it said, noting efforts were underway to expand the tax base and raise revenue mobilization, while also improving the quality of public investment and spending.
Additionally, said Porter, Pakistan was strengthening its social safety net to protect the vulnerable, including through timely disbursements under the Benazir Income Support Program. “This will allow for the expansion of the Unconditional Cash Transfers Kafaalat program to 9.3 million families this fiscal year, with an annual inflation adjustment of the stipend,” it said, adding authorities were looking to improve its coverage and increase enrollment into the Conditional Cash Transfers programs supporting children’s education and health.
According to Porter, Pakistan is also striving for reforms to reduce costs in the energy sector and restore its viability. “With the combined circular debt across power and gas sectors exceeding 4% of GDP, immediate action was critical,” he said, noting the tariff hikes imposed over the past year. “While these increases were substantial, they were necessary to avoid further arrears that threatened the viability of these sectors and the provision of critical energy supplies,” he said, adding authorities are also working to bring private sector participation to DISCOs, institutionalize recovery and anti-theft actions, improve PPA terms, and reduce incentives for captive power.
The IMF has emphasized the need for Pakistan to return to a market-determined exchange rate and rebuild its FX reserves. “While inflows following increased regulatory and law enforcement helped normalize import and FX payments and rebuild reserves, the authorities recognize that the rupee must remain market-determined to sustainably alleviate external pressures and rebuild reserves,” said Porter. “To support this, they plan to strengthen the transparency and efficiency of the FX market and to refrain from administrative actions to influence the rupee,” he added.
According to the statement, Pakistan is undertaking a proactive monetary policy to lower inflation, which was expected to steadily decline. The country is also working to build financial sector resilience through continued vigilance aimed at safeguarding the soundness of the banking system. “Priorities include addressing undercapitalized financial institutions, ensuring foreign exchange exposures within regulatory limits, and aligning bank resolution and crisis management frameworks with best practice,” it added.
On state-owned enterprise and governance reforms, the IMF said Pakistan is proceeding with its privatization plans. “High governance and transparency standards will apply to the management of assets under the ownership of the newly created Sovereign Wealth Fund and the operations of the SIFC,” it said. “To further strengthen governance, the authorities will ensure public access to asset declarations from cabinet members and a task force, with participation from independent experts, will complete a comprehensive review of the anticorruption framework,” it added.
The global lender stressed timely disbursement of committed external support remained critical to support the authorities’ policy and reform efforts. “The IMF team thanks the Pakistani authorities, private sector, and development partners for fruitful discussions and cooperation throughout this mission,” it added.
The statement followed IMF Managing Director Kristalina Georgieva telling Bloomberg in an interview earlier in the day that she expected the SLA “any day now.” It also came after the Prime Minister’s Office (PMO) issued a statement of a meeting between Porter and interim Prime Minister Anwaarul Haq Kakar.
According to the PMO statement, Porter and IMF Resident Representative for Pakistan Esther Perez Tuiz apprised the premier of the status of the negotiations under the first review. It said Porter had acknowledged the efforts made by the Government of Pakistan in meeting various program quarterly targets, adding it had resulted in the positive conclusion of talks. Thanking the IMF team for its ongoing work with Pakistan, Kakar praised the leadership of interim Finance Minister Shamshad Akhtar, as well as the role of the State Bank of Pakistan governor. “The prime minister reaffirmed the government’s enduring commitment to the reform efforts agreed with the IMF as these are aimed at stabilizing the Pakistan’s economy in the long run,” it added.