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Pakistan

Pakistan, IMF reach staff-level agreement on new $3bn stand-by arrangement

  • Agreement subject to approval by the IMF Executive Board, with its consideration expected by mid-July
Published June 30, 2023

In a major breakthrough, the International Monetary Fund (IMF) announced on Friday that its staff and Pakistani authorities have reached an agreement on policies to be supported by a $3-billion, nine-month Stand-By Arrangement (SBA).

The staff-level agreement is subject to approval by the IMF Executive Board, with its consideration expected by mid-July.

“The new SBA builds on the authorities’ efforts under Pakistan’s 2019 EFF-supported programme which expires end-June,” Nathan Porter, IMF Mission Chief to Pakistan, was quoted as saying in the press release on the day the Extended Fund Facility expired.

The new IMF arrangement, seen as a massive positive for the government and the economy reeling from crisis, extends Pakistan’s commitment with the lender well into the second half of fiscal year 2023-24, and is also an upgrade from the earlier expectation that the country would receive $1.1 billion at the conclusion of the ninth review.

A new stand-by arrangement with the IMF: here are some key points

Porter said the new SBA would provide a policy anchor and a framework for financial support from multilateral and bilateral partners in the period ahead for Pakistan.

“Since the completion of the combined seventh and eight reviews under the 2019 Extended Fund Facility (EFF) in August 2022, the economy has faced several external shocks such as 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.

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: IMF Mission Chief to Pakistan Nathan Porter

“As a result of these shocks as well as some policy missteps—including shortages from constraints on the functioning of the foreign exchange market—economic growth has stalled.

“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.

As it happened: Pakistan’s last-gasp IMF bailout

“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.”

‘Measures taken, but authorities must resist pressure for unbudgeted spending’

Porter said Pakistan has already taken a number of measures ahead of the new programme, including a FY24 budget in line with the goals of supporting fiscal sustainability and mobilising revenue, which will enable greater social and development spending.

However, the official added that the government must resist pressures for unbudgeted spending or tax exemptions in the period ahead, a remark that comes as Pakistan also prepares for elections this year.

“The FY24 budget advances a primary surplus of around 0.4 percent 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.”

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: IMF Mission Chief

Porter said the State Bank of Pakistan (SBP) has withdrawn the guidance on import prioritisation and is committed to ensuring the full market determination of the exchange rate.

“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.

“Continued efforts to mobilise 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.”

“The authorities’ program also includes ongoing efforts to strengthen the viability of the energy sector (including through a timely FY24 annual rebasing), improving SOE governance, and strengthening the public investment management framework, including for projects needed to build resilience to climate change.

The IMF said that full and timely implementation of the program will be critical for its success in light of the difficult challenges.

Background

The IMF agreement comes hours after Finance Minister Ishaq Dar stated that he expected a staff level agreement for a crucial bailout deal with the IMF in the next 24 hours.

“We are very close to signing a staff level agreement with the IMF,” Dar told Reuters late on Thursday.

“I think it should come some time tonight or maximum within 24 hours … we have finalised everything.”

Dar had earlier also stated that the government was making efforts to secure more than $1.1 billion in funding.

“We are making efforts to ensure that Pakistan not only gets the funds from the ninth review before June 30, but a mechanism is also found to get the ‘balance’,” said Dar during his appearance on ‘Capital Talk’ aired on Geo News on Tuesday.

“There is roughly $2.6 billion (in disbursement) left in Pakistan’s IMF programme, according to my calculations.”

The development comes at a time when Pakistan’s economy is reeling from crisis with foreign exchange reserves at only a month of import cover. The depleting level prompted Pakistan’s central bank to impose import restrictions, much to the dismay of industries heavily reliant on inward shipments to produce goods in the country.

While the SBP removed restrictions, many believe that imports would not truly begin until Pakistan secured lines of credit that would boost foreign exchange reserves.

Programme seen as crucial to help battered economy

Experts have regularly stated the resumption of the IMF bailout package is crucial for the cash-strapped South Asian economy facing a balance of payment crisis.

The funding from the international lender would pave the way for further inflows from Pakistan’s multilateral and bilateral partners reducing risks of a potential default, experts have said.

In addition, it lends stability to the currency market, and anchors expectations of economic growth, inflation and interest rates.

Bilal Memon

Bilal Memon is the Head of Digital Content at Business Recorder. His Twitter handle is @bilalahmadmemon

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Comments

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Shahid Khan Jun 30, 2023 09:51am
What an achievement for our poor country! Masha'Allah we will have more loan and more interest! This is the nazuk Surat e haal we are living with. Shame on those who are ruling our country or ruled us
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Tulukan Mairandi Jun 30, 2023 09:57am
It is just a Standby Arrangement (i.e. an allocation subject to many tests) that is being blown out of proportion by Dar and Co. The $1.1 billion is gone. Stop hoodwinking your people, Dar.
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Tulu Mar Jun 30, 2023 10:11am
IMF should give policies to Government to immediately stop free fuel, Gov Cars , free housing , free electric, free forigen tour .
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Abdullah Jun 30, 2023 10:14am
Pti and imran feeling sad about it.Same like indian they badly wanted pkaistan to default as the rich would not get affected.
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MUHAMMAD Aquib Jun 30, 2023 10:34am
Instead of taxing additional 2.5 income tax on some salaried employee ,those give servants doing double job or additional business ,but not paying or little payingincome tax on this extra income must be brought under FBR rafar
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Yogesh (India) Jun 30, 2023 10:41am
Now that IMF has given you loans behave responsibly. Do not spend money on luxury or war.Come out of this mess. Blaming world is easy but not the solution.You have to perform.Increse your exports,earn dollars. Best luck from India.
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ALTAF NOOR ALI Jun 30, 2023 10:42am
Mr. Ishaq Dar is a Chartered Accountant. He lived up to the expectation. He fought till the end to provide maximum relief to the common people, in line with direction of his patron in the UK. It something else that there was not much room available for us. With this program implemented, I hope he will make the most of what is available.
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Aqib Jun 30, 2023 10:46am
Against all odds, this agreement is signed on the last day in the most dramatic fashion and Pakistani way. No wonder we Pakistanis keep calm in the most tense situations be it a cricket match or a matter of life or death for our economy. Shukar Alhamulillah
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KU Jun 30, 2023 10:51am
The $3 billion is just one band-aid on many wounds that fester our country. The public sector and visionaries should be taken to task for not planning ahead, particularly for the economic hardship that we face today. But we also need to form a Truth Commission to find out why every politician and business elite is rich and Pakistan bankrupt, failure to counter the demon of corruption will see more of the same persistent economic crises.
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Saleem Jun 30, 2023 10:54am
It is a pity o watch a country with huge young population and so much resources of all kind begging in front of IMF. If we could have found an honest and committed leadership this country could have done miracles.
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Javed Jun 30, 2023 11:28am
I was expecting PKR to appreciate to at least 280 based on this news. Why is it still 287.896? Am I missing something?
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Saleem Jun 30, 2023 11:44am
@Aqib, Pakistanis react only when their tail is on fire
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Asif Jun 30, 2023 11:51am
@Javed, You will see this on Monday
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Zeeshan Jun 30, 2023 12:17pm
@Javed, yes cause its national holidays
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Dr fahad Jun 30, 2023 12:21pm
@Abdullah, From Indians we can expect that behavior. But every Pakistani irrelevant of political views should work hard to strive Pakistan forward and support each other
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WarrenDesiBuffet Jun 30, 2023 12:55pm
ALL credit to Shahbaz Sharif for this fantastic achievement. Country saved from economic devastation at a level most people cannot fathom. But Dar must be sidelined forever for his role in antagonizing IMF with his silly immature stance.
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WarrenDesiBuffet Jun 30, 2023 12:57pm
@Tulukan Mairandi, Sir you were for last many months declaring IMF will never come through. It has, contrary to expecations. It is ok to be wrong when the result is so much better than the position you took.
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Tulukan Mairandi Mere L Pe Jun 30, 2023 12:59pm
@Javed, just wait and see what happens next week i.e. after eid holidays. For sure there will be a huge correction in the forex market
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KhanRA Jun 30, 2023 01:37pm
Yeay we succeeded at begging. Why did it take so long for the govt to bend to IMF’s reasonable demands (increase taxation, parliamentarians declare assets, reduce loss-making state industries etc)? Inflation was worsened because Dar wanted to show how strong he is. And in the end, the government just caved anyway. We could have been saved months of volatile uncertainty.
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KhanRA Jun 30, 2023 01:38pm
@ALTAF NOOR ALI, why is an accountant and not an economist in charge of economy? I can’t tell if you’re joking in your comment
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KhanRA Jun 30, 2023 01:38pm
@Aqib, only last day because government caved in over the last budget. It didn’t have to be this way.
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GM Jun 30, 2023 01:39pm
@Tulukan Mairandi, Ab, Jaa Apni Hasratoon Pay Aansoo Baha K Sow Ja.
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[email protected] Jun 30, 2023 02:03pm
Showbiz good bhikaree
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Ash Chak Jun 30, 2023 04:36pm
Once again Pakistan lives to fight another day.
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Az_Iz Jun 30, 2023 05:05pm
It is good the IMF is not releasing all the money all at once. Else these guys will spend it all up , in no time , and end up in a similar situation. They will subsidize petrol , cooking oil and so on.
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Jonathan Jun 30, 2023 07:37pm
Beggers will always be beggers...compliments of corrupt ruling elite.
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Bashir A Aziz Jun 30, 2023 08:43pm
@ALTAF NOOR ALI, most of it will be transferred in the overseas bank accounts of the corrupt Pakistani politicians and the poor people of Pakistan will have to pay it back. Just like these guys have been doing for the last 30years. I wish the world would stop loaning money to Pakistan so that would get on its own 2 feet, It is better to declare bankruptcy than to be a perpetual slave to the loan sharks(like IMF) of the world.
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Aslam Khan Jun 30, 2023 08:52pm
Dollars kee barrish on pakistan.
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PrasadDeccani Jul 01, 2023 02:54am
@Abdullah, Unlike (most of) Pakistanis we (Indians) know what exactly 'Standby Arrangement' means. You are not out of woods yet. Not sure why Pakistanis like you are going gaga on a standby arrangement. Anyway, good luck to you.
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Builder Jul 01, 2023 02:58pm
As @PrasadDeccani say, Indians are way too advanced. They know things which most of the people in the world don't know. They have technologies which are unheard of - the world can't even think about those at this stage. Amazing!
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