IMF Approves Final Review of $3bn Stand-By Arrangement for Pakistan

The International Monetary Fund (IMF) and Pakistan have reached a staff-level agreement on the second and final review under the $3 billion Stand-By Arrangement (SBA). This agreement marks a significant milestone in Pakistan’s economic stabilization efforts and sets the stage for the disbursement of the last tranche from the IMF.

The IMF team, led by Nathan Porter, conducted a five-day review in Islamabad from March 14 to 19, 2024. The agreement is subject to approval by the IMF’s Executive Board. Upon approval, the remaining access under the SBA, amounting to approximately $1.1 billion (SDR 828 million), will become available.

The IMF mission chief noted that Pakistan’s economic and financial position has been improving since the first review due to prudent policy management and the resumption of inflows from multilateral and bilateral partners. However, Porter warned that economic growth will remain modest in the ongoing financial year as inflation is still above target.

The IMF emphasized the need for ongoing policy and reform efforts to address Pakistan’s deep-seated economic vulnerabilities. These vulnerabilities are exacerbated by elevated external and domestic financing needs and an unsettled external environment.

The new government, led by Shehbaz Sharif, is committed to continuing the policy efforts initiated under the current SBA for the remainder of the year. In particular, the authorities are determined to achieve the FY24 general government primary balance target of PRs 401 billion (0.4% of GDP). They also aim to broaden the tax base and continue with the timely implementation of power and gas tariff adjustments to keep average tariffs consistent with cost recovery.

The State Bank of Pakistan is committed to maintaining a prudent monetary policy to lower inflation and ensure exchange rate flexibility and transparency in the operations of the forex market.

The statement also mentioned a new loan that Pakistan is planning to seek from the IMF. The authorities expressed interest in a successor medium-term Fund-supported program. The aim of this program is to permanently resolve Pakistan’s fiscal and external sustainability weaknesses, strengthen its economic recovery, and lay the foundations for strong, sustainable, and inclusive growth.

The new program would focus on strengthening public finances, including through gradual fiscal consolidation, broadening the tax base (especially in undertaxed sectors), and improving tax administration.

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