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LAHORE: The Federation of Pakistan Chambers of Commerce and Industry’s Businessmen Panel (BMP) has termed the agreement with IMF as a positive development for the economy but warned that the multilateral donors financing might not bring any significant impact on weak economy, as the sustainable solution to Pakistan’s economic issues lies in the structural reforms and consistent policies.

FPCCI former president and BMP Chairman Mian Anjum Nisar said here on Sunday that the deal would end speculation of a possible default, but the country’s debt troubles won’t end there, as the more IMF aid will be needed in 2024, he added.

Anjum Nisar said that the rupee will strengthen which will reduce inflation, so, the IMF agreement is overall a good development.

The BMP Chairman expressed his opinion on the agreement with the International Monetary Fund and said that there is positive news at the beginning of the new fiscal year, as it was not expected but the agreement was reached. Now the rupee will strengthen, which will reduce inflation.

He said that this is a 9-month agreement which is very positive, as the caretaker government will remain in the facility; however, the IMF conditions have increased the cost of production. He said that government will make payments to exporters when fiscal space is created. He said that Pakistan is likely to avert default this year, as the country managed to secure a last-minute International Monetary Fund (IMF) bailout.

He was of the view that a staff-level agreement signed with the lender suggests aid will finally materialize after months of delay. The remarks come after the 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 program which expires end-June. He said the funding is likely to be delivered in tranches so that the IMF can make sure Pakistan makes progress on fiscal consolidation and continues to allow the rupee to trade freely.

But chances seem high that the board will approve the funding because Pakistan in recent days has stepped up efforts to meet IMF demands. Its raised taxes, cut spending in its budget, and hiked its key interest rate to a record at an unplanned meeting. The funding from IMF would also unlock another $3 billion in loans pledged by Saudi Arabia and the UAE, he said.

Together, the loans should allow the country to repay its debts through April 2024, assuming that the current account deficit for the fiscal year comes in below $4 billion as the central bank projects, he said. He projected that Pakistan dollar funds could rise up to $9.5 billion on account of inflows from the IMF and friendly nations.

However, this won’t be enough to repay $8.7 billion in loans (net of rollovers) in the year starting July and also pay the country’s import bills for the full fiscal year. This means whoever is in power after elections in October will have to negotiate a new deal with the IMF. The upcoming government would need to adhere to measures agreed with the IMF to secure another program next year, said the report.

He said the decision to take more loans will keep complicating the problems in longer term, as the government needs $23 billion in foreign debt repayments for this fiscal year, which is the direct result of such decisions of taking loans from foreign nations.

Anjum Nisar said that the country’s economy is plunging into an ever deepening ravine with plummeting foreign exchange reserves, with the continuation of the flawed policy of keeping the interbank dollar rate artificially low that is increasingly being attributed to the government rather than the State Bank irrespective of the autonomy granted to it.

He said that the government has apparently taken a riskier and longer path of begging from foreign nations to avoid the risk of default.

Copyright Business Recorder, 2023

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