Finally, $7bn EFF approved by IMF board

ISLAMABAD: The International Monetary Fund (IMF) Executive Board on Wednesday approved Pakistan’s 37-month Extended Fund Facility (EFF) arrangement of about $7 billion aimed at supporting the authorities’ efforts to cement macroeconomic stability and create conditions for a stronger, more inclusive, and resilient growth.

The IMF Executive Board considered Pakistan’s request for an Extended Arrangement under the Extended Fund Facility.

It also authorized to immediately release the first loan tranche of nearly $1.1 billion, which is likely to be received by September 30.

$7bn IMF EFF: Board likely to do the needful

It is the 25th IMF programme that Pakistan has obtained. The new program aims to support the authorities’ efforts to cement macroeconomic stability and create conditions for a stronger, more inclusive, and resilient growth. This includes steps to strengthen fiscal and monetary policy and reforms to broaden the tax base, improve State Owned Enterprises’ (SOE) management, strengthen competition, secure a level playing field for investment, enhance human capital, and scale up social protection through increased generosity and coverage in the Benazir Income Support Program (BISP).

Key policy goals of the program include; Sustainable public finances, through a gradual fiscal consolidation based on reforms to broaden the tax base and remove exemptions, while increasing resources for critical development and social spending. In this regard, the authorities plan to increase tax revenues through measures of 1½ percent of GDP in fiscal year 2025 and 3 percent of GDP over the program.

A fairer balance of fiscal effort between the Federal and Provincial governments, which have agreed to rebalance spending activities in line with the 18th constitutional amendment through the signature of a National Fiscal Pact that devolves to provincial governments higher spending for education, health, social protection, and regional public infrastructure investment, enabling improved public service provision.

At the same time, the provinces will take steps to increase their own tax-collection efforts, including in sales tax on services and agricultural income tax. On the latter, all provinces are committed to fully harmonizing their Agriculture Income Tax regimes through legislative changes with the federal personal and corporate income tax regimes and this will become effective from January 1, 2025.

Another objective of the programme is restoring energy sector viability and minimizing fiscal risks through the timely adjustment of energy tariffs, decisive cost-reducing reforms, and refraining from further unnecessary expansion of generation capacity. The Pakistani authorities remain committed to undertaking targeted subsidy reforms and replace cross-subsidies to households with direct and targeted BISP support.

Copyright Business Recorder, 2024