By Khaleeq Kiani
Published in Dawn on March 21, 2024
• Three-year programme to focus on strengthening public finances, restoring energy sector’s viability, returning inflation to target
• $1.1bn due next month after staff-level accord reached on final review of current package
ISLAMABAD: Announcing the staff-level agreement on the successful completion of the existing short-term facility, the International Monetary Fund (IMF) on Wednesday confirmed Pakistan was seeking a 24th medium-term bailout package for a permanent push towards longstanding structural reforms.
In its end-of-mission statement, the IMF said that subject to the approval of its executive board, the staff-level agreement would enable Pakistan to access about $1.1 billion — 828 million special drawing rights (SDR) — by late April.
It said Pakistan “expressed interest in a successor medium-term Fund-supported programme with the aim of permanently resolving Pakistan’s fiscal and external sustainability weaknesses, strengthening its economic recovery, and laying the foundations for strong, sustainable, and inclusive growth”.
It said the IMF team reached a staff-level agreement with the Pakistani authorities on the second and final review of Pakistan’s stabilisation programme supported by the IMF’s $3 billion standby arrangement approved in July last year.
While doing so, the Fund also laid bare the broader, though well-known, conditionalities of the next programme on which “discussions are expected to start in the coming months”, the statement added.
As in the past programmes, four central areas would remain under focus for reforms. The top objective of the next medium-term programme — Extended Fund Facility of about 36 to 39 months — would be strengthening public finances, including through gradual fiscal consolidation and broadening the tax base, especially in under-taxed sectors (read real estate, retail and wholesale trade and agriculture) and improving tax administration to improve debt sustainability and create space for higher priority development and social assistance spending to protect the vulnerable.
The second objective of the next programme would be restoring the energy sector’s viability by accelerating cost-reducing reforms, including through improving electricity transmission and distribution, moving captive power demand to the electricity grid, strengthening distribution company governance and management, and undertaking effective anti-theft efforts.
The third key objective is returning inflation to the target, with a deeper and more transparent flexible foreign exchange market supporting external rebalancing and rebuilding foreign exchange reserves.
The fourth and last critical aim would be promoting private-led activity through the above-mentioned actions as well as the removal of distortionary protection, advancement of state-owned enterprises (SOEs) reforms to improve the sector’s performance, and the scaling up investment in human capital to make economic growth more resilient and inclusive and enable Pakistan to reach its economic potential.
The IMF staff-level agreement recognised the “strong programme implementation” by the State Bank of Pakistan and the caretaker government in recent months, as well as the new government’s intentions for ongoing policy and reform efforts to move Pakistan from stabilisation to a strong and sustainable recovery.
“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”, the IMF mission chief to Pakistan, Nathan Porter, noted. However, growth is expected to be modest this year and inflation remains well above target, he said.
Mr Porter emphasised that “ongoing policy and reform efforts were required to address Pakistan’s deep-seated economic vulnerabilities amidst the ongoing challenges posed by elevated external and domestic financing needs and an unsettled external environment”.
The mission also welcomed the new government’s commitment to continue the policy efforts that started under the current bailout package to entrench economic and financial stability for the remainder of this year.
In particular, the authorities recommitted to delivering the fiscal 2024’s general government primary balance target of Rs401bn (0.4pc of GDP), with further efforts towards broadening the tax base and continuing with the timely implementation of power and gas tariff adjustments to keep average tariffs consistent with cost recovery while protecting the vulnerable through the existing progressive tariff structures, thus avoiding any net circular debt accumulation in the ongoing fiscal year.
The State Bank also reaffirmed to the IMF that it would maintain a prudent monetary policy to lower inflation and ensure exchange rate flexibility and transparency in the operations of the foreign exchange market.
