Pakistan and IMF reach staff-level agreement under $3 billion loan facility

In this handout photograph released by Pakistan’s Press Information Department (PID) and taken on March 14, 2024, Pakistan’s Finance Minister Muhammad Aurangzeb (2L) speaks with International Monetary Fund (IMF) Mission Chief for Pakistan Nathan Porter (2R) during a meeting in Islamabad. (AFP)

• Talks for medium-term Fund-supported program for long term stabilization are expected to start in the coming months
• Pakistan is expected to receive the final tranche of $1.1 billion from IMF after its executive board meeting in April

KARACHI: The International monetary Fund (IMF) and Pakistani authorities have reached a staff-level agreement on the second and final review carried out under a stand-by arrangement signed last year, clearing the way for the disbursement of the final tranche of nearly $1.1 billion, the fund announced on Wednesday.
An IMF delegation, led by Nathan Porter, visited Islamabad from March 14-19 to hold discussions on the second review of Pakistan’s economic program supported by the short-term financial arrangement.
Subject to the approval of the international lender’s executive board, Pakistan will now be able to access about $1.1 billion. The IMF board is expected to give the final approval during a meeting in the month of April.
The staff-level agreement followed the IMF’s recognition of strong program implementation by the State Bank of Pakistan and the country’s caretaker administration which was managing its financial affairs before the February 8 general elections.
“Pakistan’s economic and financial position has improved in the months since the first review, with growth and confidence continuing to recover on the back of prudent policy management and the resumption of inflows from multilateral and bilateral partners,” Porter said in a statement.
However, he added the growth was expected to remain modest this year and inflation well above the target.
The IMF official emphasized the ongoing policy and reform efforts should continue to address the country’s deep-seated economic vulnerabilities amid the challenges posed by elevated external and domestic financing needs and an unsettled external environment.
“The new government is committed to continue the policy efforts that started under the current SBA to entrench economic and financial stability for the remainder of this year,” Porter said.
He noted Pakistan’s central bank was 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 Pakistani authorities also expressed interest in a successor medium-term IMF-supported program with the aim of permanently resolving the country’s fiscal and external sustainability weaknesses, strengthening its economic recovery, and laying the foundations for strong, sustainable and inclusive growth.
The IMF statement said the upcoming discussions are set to focus on strengthening public finances by gradually consolidating fiscal policies and broadening the tax base. This will include integrating undertaxed sectors and enhancing tax administration to improve debt sustainability and allow increased spending on development and social assistance for the vulnerable.
Additionally, plans are in place to restore the energy sector’s viability through cost-reducing reforms, such as improving electricity transmission and distribution, transitioning captive power demand to the grid, enhancing governance in distribution companies and intensifying efforts to combat theft.
Efforts to bring inflation back to the target will also be supported by a more transparent and flexible foreign exchange market, aiding external rebalancing and the replenishment of foreign reserves.
Moreover, promoting private sector-led activity, coupled with the removal of market distortions, advancing state-owned enterprise reforms, and increasing investment in human capital, aims to foster resilient and inclusive growth, enabling Pakistan to achieve its economic potential.