Advisor to Prime Minister on Finance Dr Abdul Hafeez Shaikh said on Sunday that a staff-level agreement has been reached with the International Monetary Fund (IMF) on a 39-month Extended Fund Facility (EFF) programme of $6 billion.
While speaking exclusively to state-run television, Shaikh said that "I want to tell you that after month''s long discussion, a staff-level agreement has been singed with the IMF and it would be approved by the IMF Executive Board". However, an official said that 1.3 percent of the GDP (around Rs 600 billion) taxation measures have been agreed with the Fund to target 0.6 percent primary deficit in the next fiscal year and claimed that an agreement was also reached that in the first fiscal year Rs100 billion power tariff adjustment would be made.
The Advisor explained that an IMF programme was required because there was pressure on foreign exchange reserves and country was required to meet the debt obligations. The size of debt is $90 billion. He said that trade balance increased in the negative by $20 billion during the last fiscal year. Shaikh added that the country''s financing needs were $12 billion yearly which could not be met in the absence of an IMF programme. He pointed out that the IMF is an international institution, which helps its member countries overcome balance of payments challenges. The major benefit of the IMF programme is that the country would get $6 billion from the IMF and an additional $ 2 billion to 3 billion from the World Bank and Asian Development Bank (ADB). He said that the programme would send a positive signal across.
He said that this would be the last IMF programme, if unlike past, we are able to implement structural reforms successfully to move on the path to sustainable growth by boosting country''s exports, and increase investment. Otherwise, he said that IMF programme deals were inked in the past as well but structural reforms were not undertaken.
About electricity and gas prices increase, he said that in case of increase in electricity prices, there would be no impact on those using up to 300 units as government would earmark Rs 216 billion, up by Rs 50 billion in the next fiscal year''s budget to provide relief to those consuming up to 300 units monthly. He said that for social safety net, Rs 180 billion will be allocated, additional Rs 80 billion, for fiscal year 2019-20 to protect the vulnerable from the impact of the programme.
A statement was also issued by the IMF which stated that the Extended Fund Facility arrangement aims to support the authorities'' strategy for stronger and more inclusive growth by reducing domestic and external imbalances, removing impediments to growth, increasing transparency, and strengthening social spending.
An ambitious structural reform agenda will supplement economic policies to rekindle economic growth and improve living standards. Financing support from Pakistan''s international partners will be critical to supporting the authorities'' adjustment efforts and ensure that the medium-term programme objectives can be achieved.
In response to a request by the Pakistani authorities, an International Monetary Fund (IMF) mission led by Ernesto Ramirez Rigo visited Islamabad from April 29 to May 11 to discuss IMF support for the authorities'' economic reform programme. At the end of the visit, Ramirez Rigo made the statement that "the Pakistani authorities and the IMF team have reached a staff-level agreement on economic policies that could be supported by a 39-month Extended Fund Arrangement (EFF) for about US$6 billion.
This agreement is subject to IMF management approval and to approval by the Executive Board, subject to the timely implementation of prior actions and confirmation of international partners'' financial commitments.
The programme aims to support the authorities'' strategy for stronger and more balanced growth by reducing domestic and external imbalances, improving the business environment, strengthening institutions, increasing transparency, and protecting social spending. "Pakistan is facing a challenging economic environment, with lacklustre growth, elevated inflation, high indebtedness, and a weak external position.
This reflects the legacy of uneven and procyclical economic policies in recent years aiming to boost growth, but at the expense of rising vulnerabilities and lingering structural and institutional weaknesses.
The authorities recognize the need to address these challenges, as well as to tackle the large informality in the economy, the low spending in human capital, and poverty. In this regard, the government has already initiated a difficult, but necessary, adjustment to stabilize the economy, including thorough support from the State Bank of Pakistan.
These efforts need to be strengthened. Decisive policies and reforms, together with significant external financing are necessary to reduce vulnerabilities faster, increase confidence, and put the economy back on a sustainable growth path, with stronger private sector activity and job creation.
"The EFF aims to support the authorities'' ambitious macroeconomic and structural reform agenda during the next three years. This includes improving public finances and reducing public debt through tax policy and administrative reforms to strengthen revenue mobilization and ensure a more equal and transparent distribution of the tax burden. At the same time, a comprehensive plan for cost-recovery in the energy sectors and state-owned enterprises will help eliminate or reduce the quasi-fiscal deficit that drains scarce government resources.
These efforts will create fiscal space for a substantial increase in social spending to strengthen social protection as well as in infrastructure and human capital development. The modernization of the public finance management framework will increase transparency and spending efficiency. Provinces are committed to contribute to these efforts by better aligning their fiscal objectives with those of the federal government.
"The forthcoming budget for fiscal year 2019-20 is a first critical step in the authorities'' fiscal strategy. The budget will aim for a primary deficit of 0.6 percent of GDP supported by tax policy revenue mobilization measures to eliminate exemptions, curtail special treatments, and improve tax administration.
This will be accompanied by prudent spending growth aimed at preserving essential development spending, scaling up the Benazir Income Support Programme and improve targeted subsidies, with the goal of protecting the most vulnerable segments of society.
"The State Bank of Pakistan will focus on reducing inflation, which disproportionately affects the poor, and safeguarding financial stability. A market-determined exchange rate will help the functioning of the financial sector and contribute to a better resource allocation in the economy. The authorities are committed to strengthening the State Bank of Pakistan''s operational independence and mandate.
"An ambitious structural reform agenda will supplement economic policies to rekindle economic growth and improve living standards. Priority areas include improving the management of public enterprises, strengthening institutions and governance, continuing anti-money laundering and combating the financing of terrorism efforts, creating a more favourable business environment, and facilitating trade. To improve fiscal management the authorities will engage provincial governments on exploring options to rebalance current arrangements in the context of the forthcoming National Finance Commission (NFC). "The IMF team is grateful to the Pakistani authorities for open and constructive discussions and their hospitality."
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