Pakistan has finally gotten some relief from the International Monetary Fund (IMF). The global organisation has said that the two parties have reached a staff-level agreement on the combined seventh and eighth reviews for a USD 6 billion Extended Fund Facility (EFF) loan facility. “The immediate priority is to stabilize the economy with the rapid implementation of the budget for financial year 2023. Goals include continued adherence to an exchange-rate which is market-based, and a proactive as well as prudent policy,” the IMF informed in a statement.
In order to protect the most vulnerable, it is crucial to increase social safety. At the same time, structural changes must be accelerated to enhance governance and the effectiveness of state-owned companies (SOEs). The agreement needs to be approved by the IMF Executive Board after being finalised by a Nathan Porter-led IMF team.
Porter added in the statement that “approximately USD 1,177 million (SDR 894 million) will become accessible, increasing the total disbursements under the programme to about USD 4.2 billion.” The SDR is a type of international reserve asset which was developed by the IMF in 1969, to supplement the official reserves of its member nations. “Pakistan is at a difficult economic crossroads. Procyclical domestic policies and a challenging external environment increased domestic demand to unsustainable levels. The ensuing economic overheating reduced reserve buffers, increased inflation, and resulted in significant fiscal and external deficits in FY22, it stated.
The IMF board will consider extending the EFF until the end of June 2023 and increasing access by SDR 720 million, bringing the total access to approximately US$7 billion, to assist programme implementation, cover the increased financing needs in FY23, and catalyse new funding. The implementation of the specified policies will assist in establishing the framework for more inclusive and sustainable growth. The IMF staff wants the Pakistani authorities to be prepared to take any extra actions required to achieve the program’s goals in light of the current increased level of uncertainty in the global economy and financial markets. According to Prime Minister Shehbaz Sharif, as reported in the Dawn newspaper, “The deal with the Fund has set the stage to lead [the] country out of economic troubles.”
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The budgetary measures agreed upon in the previous review have been deviated from, in part due to the gasoline and power subsidies announced by the authorities in February. In order to accomplish programme goals, the team stressed the necessity of swift implementation of tangible policy measures, notably those related to the elimination of fuel and energy subsidies and the fiscal year 2023 budget. According to Business Recorder, the IMF team is eager to keep up its close communication and involvement with the government of Pakistan on policies to ensure macroeconomic stability for the benefit of all Pakistanis.
IMF’s earlier stance on Pakistan-
Pakistan achieved a deal with the IMF on June 22 to resume the $6 billion loan package that had stalled and open the door to funding from other foreign sources. The deal was reached when the government agreed to increase taxes by an additional Rs 43,600 crore and gradually boost the price of gasoline to Rs 50 per litre. The Pakistani delegation, led by Finance Minister Miftah Ismail, and the IMF staff mission reached this agreement. A $6 billion extended financing facility agreement for a 39-month period was reached in July 2019. The guaranteed amount has only been paid out to date to the tune of 50%. Pakistan has to revive the facility immediately in order to gain access to $1 billion in order to support its dwindling foreign exchange reserves.
In its draught Memorandum for Economic and Financial Policies (MEFP) statement, the IMF recommended combining the 7th and 8th programme reviews, although it did not specify whether it would also approve $2 billion in loan tranches. The staff level agreement that Pakistani authorities are currently attempting to complete as soon as possible would have the MEFP as its foundation.
However, Finance Minister Ismail asserted that Pakistan had received the MEFP document, which combined the seventh and eighth bailout programme evaluations, and that upon their approval, the country would receive a $1.9 billion loan. In its draught MEFP report, the IMF did not mention increasing the loan tranche size to $1.9 billion. The prospect of increasing the loan amount will now be discussed by both parties. In order to regain the confidence of the international community in its economic plan and to get access to international lending institutions and investment, Pakistan urgently needs the IMF package to be renewed.