ISLAMABAD (The Thursday Times) — The International Monetary Fund (IMF) today announced a significant development in Pakistan’s economic recovery efforts. A staff-level agreement has been reached with Pakistan following the first review under the country’s Stand-By Arrangement (SBA). Awaiting approval from the IMF Executive Board, this agreement could unlock access to approximately US$700 million, contributing to a larger US$3 billion SBA.
Led by Nathan Porter, an IMF team wrapped up its discussions in Islamabad with caretaker prime minister Anwaar-ul-Haq Kakar to discuss approving an agreement which will bring total disbursements under the program to nearly US$1.9 billion.
Porter highlighted that Pakistan is experiencing a nascent economic recovery, supported by international partners and renewed confidence. The country has undertaken key measures such as executing the FY24 budget, adjusting energy prices, and securing increased foreign exchange inflows, which have helped reduce fiscal and external pressures. However, Pakistan continues to face challenges, including vulnerability to external risks like geopolitical tensions, fluctuating commodity prices, and tightening global financial conditions.
During the meeting, Porter stated that he believed “inflation is expected to decline over the coming months amid receding supply constraints and modest demand.” He added, however, that Pakistan remained susceptible to external risks, “including the intensification of geopolitical tensions, resurgent commodity prices, and the further tightening in global financial conditions.” He reiterated his stance that efforts to build resilience in Pakistan needed to continue.
The focus of the SBA is on enhancing macroeconomic stability and setting the stage for balanced growth in Pakistan. The country’s policy priorities under the agreement encompass a range of economic and fiscal strategies.
Fiscal consolidation is at the forefront, with the Pakistani authorities aiming for a primary surplus of at least 0.4 percent of GDP in FY24. This involves controlling government spending and improving revenue collection, including expanding the tax base and enhancing the quality of public spending and investments.
Strengthening the social safety net will also be a key priority. The government plans to continue timely disbursements for social protection, particularly through the Unconditional Cash Transfers (UCT) Kafaalat program, expected to reach 9.3 million families this fiscal year. The expansion includes annual inflation adjustments to the stipend and efforts to increase enrollment in Conditional Cash Transfers programs supporting education and health.
In the energy sector, immediate action has been taken to address the circular debt, which exceeds 4 percent of GDP. This includes tariff adjustments and price increases, with a focus on protecting vulnerable consumers. The government is also working on reducing cost pressures and improving efficiency in the energy sector.
Maintaining a market-determined exchange rate for the Pakistani rupee and rebuilding foreign exchange reserves are also crucial. The authorities are enhancing the transparency and efficiency of the foreign exchange market.
Proactive monetary policy is another focus, aiming to lower inflation towards its target, with readiness to respond to potential price pressures, including from exchange rate fluctuations.
Financial sector resilience is also a priority per the IMF, including addressing undercapitalised financial institutions, managing foreign exchange exposures, and aligning banking frameworks with international standards.
Following the passage of the State-Owned Enterprises (SOE) law, Pakistan is advancing its SOE policy, including privatisation plans. High governance and transparency standards are set for the Sovereign Wealth Fund (SWF) and the State Infrastructure Financing Corporation (SIFC). Additionally, the government aims to strengthen its anti-corruption framework.
Pakistan is also accelerating engagement with multilateral and bilateral partners to ensure timely external support for its reform efforts.
The IMF team expressed its gratitude to the Pakistani authorities, private sector, and development partners for their cooperation and constructive discussions throughout the mission.