Pakistan IMF reach $3bn staff-level agreement

The International Monetary Fund (IMF) and Pakistan have reached to nine-month Stand-By Arrangement (SBA) of around US$3 billion, according to press statement issued by the fund.

“I am pleased to announce that the IMF team has reached a staff-level agreement with the Pakistani authorities on a nine-month Stand-by Arrangement (SBA) in the amount of SDR2,250 million (about $3 billion or 111 percent of Pakistan’s IMF quota)”, said Nathan Porter, who was leading IMF staff team in meetings with Pakistan.

The staff-level agreement is subject to approval by the IMF Executive Board, with its consideration expected by mid-July, the statement added.

Federal Minister for Finance and Revenue, Senator Mohammad Ishaq Dar also shared the agreement on his twitter on Friday.

The new SBA will support the authorities’ immediate efforts to stabilize the economy from recent external shocks, preserve macroeconomic stability and provide a framework for financing from multilateral and bilateral partners.

It would also create space for social and development spending through improved domestic revenue mobilization and careful spending execution to help address the needs of the Pakistani people.

According to the statement, steadfast policy implementation was key for Pakistan to overcome its current challenges, including through greater fiscal discipline, a market determined exchange rate to absorb external pressures, and further progress on reforms, particularly in the energy sector, to promote climate resilience, and to help improve the business climate.

It is pertinent to mention, IMF staff team led by Nathan Porter held in person and virtual meetings with the Pakistani Authorities to discuss a new financing engagement for Pakistan under an IMF Stand-by Arrangement (SBA).

Nathan said, the new SBA builds on the authorities’ efforts under Pakistan’s 2019 EFF-supported program which expires end-June.

“Since the completion of the combined seventh and eight reviews under the 2019 Extended Fund Facility (EFF) in August 2022, the economy has faced several external shocks such as the catastrophic floods in 2022 that impacted the lives of millions of Pakistanis and an international commodity price spike in the wake of Russia’s war in Ukraine,” Nathan said.

As a result of these shocks as well as some policy missteps—including shortages from constraints on the functioning of the FX market—economic growth has stalled, he added.

Inflation, including for essential items, is very high. Despite the authorities’ efforts to reduce imports and the trade deficit, reserves have declined to very low levels. Liquidity conditions in the power sector also remain acute, with further buildup of arrears (circular debt) and frequent loadshedding.

The federal government has taken a slew of policy measures since an IMF team arrived in Pakistan earlier this year, including a revised 2023-24 budget last week to meet the lender's demands.

Other adjustments demanded by the IMF before clinching the deal included reversing subsidies in power and export sectors, hikes in energy and fuel prices, jacking up the key policy rate to 22%, a market-based currency exchange rate and arranging for external financing.

It also got Pakistan to raise over 385 billion rupee ($1.34 billion) in new taxation through a supplementary budget for the 2022-23 fiscal year and the revised budget for 2023-24.