Pakistan and the IMF signed a $3 billion staff-level agreement.
The International Monetary Fund (IMF) announced a staff-level agreement with Pakistan on a $3 billion stand-by arrangement, a move long anticipated by the South Asian nation on the verge of default.
After months of battling Pakistan was able to reach a $3 billion staff-level deal with the International Monetary Fund (IMF).
The $3 billion cash, spread over nine months, is more than Pakistan expected. The government was waiting for the remaining $2.5 billion from a $6.5 billion rescue package agreed to in 2019, which ended on Friday.
According to the statement, an IMF staff team led by Nathan Porter, the IMF’s mission leader in Pakistan, met with Pakistani authorities in person and virtually to consider a new funding engagement for Pakistan under a Stand-by Arrangement.
According to Porter, despite the government’s attempts to cut imports and the trade imbalance, reserves have fallen to very low levels. The electricity sector’s liquidity situation is also deteriorating.
Given these constraints, the new agreement would serve as a policy foundation as well as a framework for future financial support from international and bilateral partners.
He went on to say, “I am happy to announce that the IMF has reached a staff-level agreement with the Pakistani authorities on a nine-month Stand-by Arrangement (SBA),” Porter stated, adding, In the vision of the difficult challenges, full and om-time implementation of the program will be critical for its success.
He stated that the new SBA built on the government’s achievements under Pakistan’s 2019 Extended Fund Facility (EFF)-supported initiative, which was set to expire on June 20. This agreement is subject to approval by the IMF’s Executive Board, which is slated to meet in mid-July to examine this proposal.
The new SBA will also help the government’s urgent attempts to stabilize the economy from recent external shocks, maintain macroeconomic stability, and offer a framework for funding from international and bilateral partners, according to the statement.
Through improved domestic revenue mobilization and careful spending execution, the new SBA will also create space for social and development spending to help address the needs of the Pakistani people, the IMF stated.
It went on to say that the new SBA will help the government’s urgent attempts to stabilize the economy after recent external shocks, maintain the equilibrium of the economy, and offer a framework for funding from international and bilateral partners.
It went on to say that consistent policy implementation is critical for Pakistan to overcome its current challenges, such as increased fiscal discipline, a market-determined exchange rate to absorb external pressures, and further development of reforms, especially in the energy sector, to promote climate sustainability and help improve the business climate.
The IMF stated that the parliament passed the FY24 budget in accordance with the aims of fiscal sustainability and revenue mobilization, which would allow for increased social and development spending.
It also said that the budget aims to achieve a primary surplus of roughly 0.4% of GDP by broadening the tax base and increasing tax collection from undertaxed sectors, as well as enhancing progressivity and leaving room to expand help for the disadvantaged through the BISP.
The lender highlighted that it is critical that the budget be implemented as planned and that the government rejected calls for unbudgeted expenditure or tax breaks in the coming months.
The IMF mission chief stated that the Pakistani authorities had already taken a number of important steps ahead of the new program, including the approval of the 2023-24 budget in line with the goals of supporting fiscal sustainability and mobilizing revenue, which will allow for increased social and development spending.
The IMF mission leader also underlined Islamabad’s ongoing attempts to get financial assistance from international organizations and bilateral partners.
In view of the severe hurdles, the international lender highlighted that the program’s full and timely execution will be vital to its success.
In addition to significant climate-related promises from the January 2023 Conference on Climate Resilient Pakistan in Geneva, the authorities’ efforts have concentrated on collecting fresh finance and securing debt rollover. This will help to sustain near-term policy initiatives and restore gross reserves, bringing them back to more comfortable levels.
Finally, Port praised Pakistani officials “for the open and constructive dialogue and collaboration that has led us to today’s successful conclusion.”
