Pakistan seals $3bn staff-level IMF agreement
Business
Deal result of months of talks as govt accepted the conditions set by the world's top lender
WASHINGTON (Dunya News) – After months of wrangling, Pakistan managed to get the $3 billion staff-level agreement done with the International Monetary Fund (IMF).
“The IMF staff and the Pakistani authorities have reached a staff-level agreement on policies to be supported by a Stand-by Arrangement (SBA). The staff-level agreement is subject to approval by the IMF Executive Board, with its consideration expected by mid-July,” read a statement posted on the IMF website.
The development comes as Finance Minister Ishaq Dar told Reuters late on Thursday night that a staff-level agreement for a crucial bailout deal with the IMF was “very close” and expected in the next 24 hours. “We are very close to signing a staff level agreement with the IMF.”
“I think it should come sometime tonight or maximum within 24 hours … We have finalised everything.”
Later in a tweet, Dar, in a tweet, expressed his gratitude over the successful and result-oriented dialogue with the IMF.
AlhamdoLilah!https://t.co/Mv8N4bqZit
— Ishaq Dar (@MIshaqDar50) June 30, 2023
According to the statement, the IMF staff team led by its mission chief to Pakistan – Nathan Porter – held in person and virtual meetings with the Pakistani Authorities to discuss a new financing engagement for Pakistan under a Stand-by Arrangement (SBA).
“I am pleased to announce that the IMF team has reached a staff-level agreement with the Pakistani authorities on a nine-month Stand-by Arrangement (SBA),” Porter said, adding, “The full and timely implementation of the programme will be critical for its success in light of the difficult challenges.”
He said the new SBA built on the authorities’ efforts under Pakistan’s 2019 Extended Fund Facility (EFF)-supported programme which was to expire on June 20. “This agreement is subject to approval by the IMF’s Executive Board, which is expected to consider this request by mid-July.”
About the background and the challenges faced by Pakistan, Porter said since the completion of the combined seventh and eight reviews under the 2019 EFF in August 2022, the country’s economy had faced several external shocks, including the catastrophic floods in 2022 that impacted the lives of millions of Pakistanis and an international commodity price spike in the wake of Russia’s war in Ukraine.
He went to point out some objections over the policy adopted by Pakistan, saying. “As a result of these shocks as well as some policy missteps—including shortages from constraints on the functioning of the FX market—economic growth has stalled.
Read more: IMF tells Pakistan to reset budget or lose loan deal
“Inflation, including for essential items, is very high. Despite the authorities’ efforts to reduce imports and the trade deficit, reserves have declined to very low levels. Liquidity conditions in the power sector also remain acute, with further buildup of arrears (circular debt) and frequent loadshedding.”
Porter noted, “Given these challenges, the new SBA would provide a policy anchor and a framework for financial support from multilateral and bilateral partners in the period ahead.”
The IMF mission chief said the authorities in Pakistan had already taken a series of important actions ahead of the new programme including the approval of the 2023-24 budget in line with the goals of supporting fiscal sustainability and mobilizing revenue, which will enable greater social and development spending.
According to Porter, the next year’s budget “advances a primary surplus of around 0.4 per cent of GDP by taking some steps to broaden the tax base and increase tax collection from undertaxed sectors, as well as improving progressivity, while ensuring space to strengthen support for the vulnerable through the BISP program.
“It will be important that the budget is executed as planned, and the authorities resist pressures for unbudgeted spending or tax exemptions in the period ahead.”
Porter also praised the State Bank of Pakistan (SBP) for withdrawing the guidance on import prioritization [removal of import restrictions] and ensuring the full market determination of the exchange rate.
Read more: Pakistan fulfills another IMF condition, removes import restrictions
“Going forward, the SBP should remain proactive to reduce inflation, which particularly affects the most vulnerable, and maintain a foreign exchange framework free of restrictions on payments and transfers for current international transactions and multiple currency practices.”
The IMF mission chief also mentioned the continued efforts on the part of Islamabad to mobilize financial support from multilateral institutions and bilateral partners.
“In addition to generous climate-related pledges from the January 2023 Conference on Climate Resilient Pakistan held in Geneva, the authorities’ efforts have focused on obtaining new financing and securing the rollover of debt falling due. This will support near-term policy efforts and replenish gross reserves, with the aim of bringing them to more comfortable levels.
To conclude, Port thanked the Pakistani authorities “for the open and constructive dialogue and collaboration that have brought us to today’s successful conclusion”.
