🇵🇰 IMF Program for Pakistan - Updates

[ghazi]

IMF Executive Board meeting expected 'late April'

• IMF official says growth and confidence are continuing to recover in Pakistan

BR Web Desk
April 5, 2024

The International Monetary Fund (IMF) said its Executive Board meeting is expected to be held in "late April" where approval would pave way for Pakistan to receive funds of around $1.1 billion (SDR 828 million) as its final tranche of the $3-billion Stand-By Arrangement (SBA) inked last year in June.

This was stated by IMF Communication Director Julie Kozack while addressing a media briefing.

"So, on March 19, IMF staff and Pakistani authorities reached a staff-level agreement on the second and final review under Pakistan's SBA.

"This is subject to approval by the IMF's Executive Board. Upon approval by the Board, Pakistan will have access to around $1.1 billion, and that would bring total disbursements under the SBA to about $3 billion.

"We do expect the board meeting to take place in late April," she said.

IMF ready for formulation of 'new medium-term programme', responds to PTI's letter

Kozack said the staff-level agreement recognises the strong programme implementation by the State Bank of Pakistan (SBP) and the caretaker government in recent months as well as the new government's intentions for ongoing policy and reform efforts to move Pakistan from stabilisation to a strong and sustainable recovery.

On the country's economic fundamentals, the IMF official said Pakistan's economic and financial position has improved in the months since the first review was completed.

"Growth and confidence are continuing to recover. And we will be releasing in the next weeks, as part of our World Economic Outlook, our latest growth forecasts for Pakistan."

Kozack reiterated that the Washington-based lender "stands ready" to engage in discussions on the new programme discussion with the Pakistani authorities.

"The authorities have expressed interest in a successor IMF-supported programme with the aim of resolving Pakistan's fiscal and external stability challenges and laying the foundation for inclusive growth.

"And, of course, we stand ready to engage in discussions in the coming months," she said.

The statement comes as Pakistan's foreign exchange reserves increased by $19 million on a weekly basis, clocking in at $8.04 billion as of March 29, data released on Thursday showed.

Total liquid foreign reserves held by the country stood at $13.38 billion, while net foreign reserves held by commercial banks stood at $5.34 billion.

However, the level of reserves is still low for an import-dependent economy, and can put pressure going forward. However, Pakistan has already brought up the need for another IMF bailout, with Finance Minister Muhammad Aurganzeb stating that discussions on it will be held during the spring meetings.

The Spring meetings 2024 of the Board of Governors of the World Bank Group and International Monetary Fund (IMF) are scheduled on April 15-20, 2024 in Washington DC, it was reported earlier. Aurangzeb is expected to lead Pakistan's delegation.

 

[ghazi]

[H2]Pakistan to request for 3-year IMF programme, says finance minister[/H2]
AFP
April 16, 2024

Finance Minister Muhammad Aurangzeb speaks during an interview with AFP at the Embassy of Pakistan in Washington, DC on April 15. — AFP

Pakistan has initiated discussions with the International Monetary Fund (IMF) over a new multi-billion dollar loan agreement to support its economic reform programme, Finance Minister Muhammad Aurangzeb has said, adding that the country will at least be requesting for a three-year programme.

During his visit to Washington, Finance Minister Muhammad Aurangzeb will attend the spring meetings organized by the IMF and World Bank, which kick off in earnest on Tuesday, with two clear objectives: to help countries combat climate change, and to assist the world's most indebted nations.

The meetings — which bring central bankers together with finance and development ministers, academics, and representatives from the private sector and civil society to discuss the state of the global economy — will kick off with the IMF's publication of its updated World Economic Outlook.

Elections were held in February this year which were marred by allegations of rigging, with PTI founder Imran Khan jailed and barred from running, and his party subject to a crackdown.

The shaky coalition that emerged, led by Prime Minister Shehbaz Sharif, is now tasked with engineering an economic turnaround by implementing a raft of unpopular belt-tightening measures.

"I do think that we will at least be requesting for a three year programme," Aurangzeb told AFP on Monday. "Because that's what we need, as I see it, to help execute the structural reform agenda."

"By the time we get to the second or third week of May, I do think we'll start getting into the contours of that discussion," he added.

[H2]Negotiations with the IMF[/H2]
The country is nearing the end of a nine-month, $3 billion loan programme with the International Monetary Fund designed to tackle a balance-of-payments crisis which brought it to the brink of default last summer.

With the final $1.1bn tranche of that deal likely to be approved later this month, Pakistan has begun negotiations for a new multi-year IMF loan programme worth "billions" of dollars, Aurangzeb said during an interview in Washington.

"The market confidence, the market sentiment is in much, much better shape this fiscal year," said Aurangzeb, a former banker who took up his post last month.

"It's really for that purpose that, during the course of this week, we have initiated the discussion with the Fund to get into a larger and an extended programme," he added.

An IMF spokesperson told AFP that the Fund is "currently focused on the completion of the current Stand-by Agreement programme," referring to the ongoing nine-month programme scheduled for completion shortly.

"The new government has expressed interest in a new programme, and Fund staff stands ready to engage in initial discussions on a successor programme," the spokesperson added.

[H2]Balancing US-China rivalry[/H2]
Pakistan has close economic ties to both the United States and China, which has put it in a tricky position as the two countries have embarked upon a costly trade war.

"From our perspective it has to be an and-and discussion," Aurangzeb said when asked how the new government plans to conduct its trading relationships with the world's two largest economies.

"[The] US is our largest trading partner, and it has always supported us, always helped us in terms of the investments," he said. "So that is always going to be a very, very critical relationship for Pakistan."

"On the other side, a lot of investment, especially in infrastructure, came through CPEC," he said, referring to the roughly 1,860-mile long China-Pakistan Economic Corridor designed to give China access to the Arabian Sea.

Aurangzeb said there was an "very good opportunity" for Pakistan to play a similar role in the trade war as countries like Vietnam, which has been able to dramatically boost its exports to the US following the imposition of tariffs on some Chinese goods.

"We have already a few examples of that already working," he said. "But what we need to do is to really scale it up."

[H2]Reform programme[/H2]
As part of the structural reform programme agreed to by the previous government, Pakistan is in the middle of a privatisation drive to sell off its poorly-performing state-owned enterprises (SOEs).

The first SOE on the list is Pakistan International Airlines, the country's flag carrier.

"We will get to know in the next month or so with respect to interest from prospective bidders," Aurangzeb said.

"Our desire is to go through with that privatisation and take it through the finishing line by the end of June," he added.

If the PIA privatisation goes well for the government, other companies could soon follow.

"We're creating an entire pipeline," he said, adding: "Over the next couple of years we want to really accelerate that. "

 

[ghazi]

[H2]Editorial: [/H2]
[H2]Pakistan's desperation for a new IMF deal is reflective of the perilous state of its economy[/H2]

NO matter how painful, a larger, medium-term IMF bailout, with complementary financial support from 'friendly' countries, is imperative for Pakistan to address its balance-of-payments troubles.

However, the key to unlocking fresh IMF funds lies in convincing the lender that Pakistan is now ready to undertake real reforms. Seeking a bailout of $6bn-$8bn before the current fiscal year ends, Finance Minister Muhammad Aurangzeb is set to hold discussions with the Fund for new lending on the margins of the IMF and World Bank spring meetings in Washington, as well as muster the support of 'friendly' nations for its request.

Negotiations for the new loan will not be easy even though the Fund is, according to the minister, "very receptive" to Pakistan's request for a new programme. Indeed, it has expressed its willingness to help Islamabad navigate through its crisis ever since Pakistani authorities broached the subject of a follow-up programme with its mission last month during the final review of the just-concluded $3bn Stand-by Arrangement.

Yet it has made it clear that the new bailout hinges on Pakistan's readiness to implement tough, unpopular reforms the country had earlier circumvented. More recently, IMF chief Kristalina Georgieva said that Pakistan was in discussions with the Fund for a follow-up programme to the previous SBA, but added that "important issues" needed to be solved, including "the tax base, how the richer part of society contributes to the economy, the way public spending is being directed and … creating … a more transparent environment".

Mr Aurangzeb is discussing a new programme at a time when global creditors like the Asian Development Bank are repeatedly warning that Pakistan will continue to face challenges from substantial new external financing requirements and the rollover of old debt, exacerbated by difficult global financial conditions.

Pakistan's desperation to close a new deal with the IMF is reflective of the perilous state of its economy. In its April 2024 Asian Development Outlook report, the ADB describes Pakistan's economic prospects as uncertain, with high risks on account of the impact of political uncertainty on the sustainability of stabilisation and reform efforts. Noting that potential supply chain disruptions from the escalation of the Middle East war would weigh on the economy, it says: "With Pakistan's large external financing requirements and weak external buffers, disbursement from multilateral and bilateral partners remains crucial."

It points out that the IMF support for the reform agenda would improve market sentiment and catalyse affordable external financing from other sources, but warns that "these inflows could be hampered by lapses in policy implementation".

If anything, the report suggests that Pakistan has no time to waste and no room to avoid the long-delayed reforms without causing irreparable harm to its people and economy.

Published in Dawn, April 16th, 2024

 

[ghazi]

[H2]IMF's projections[/H2]
Editorial
April 18, 2024

[H2]Editorial: [/H2]
[H2]Will new IMF programme break 'chain of financial struggles and bailouts'?[/H2]

THE next few years are likely to see Pakistan trapped in low-growth mode. International lenders maintain that economic growth in the country will remain subdued, hovering in the range of 1.8pc-3.5pc in the medium term because of plummeting investment, persisting fiscal and external imbalances, and a large state presence in the economy.

In its flagship World Economic Outlook 2024, released on the eve of the spring meetings of the World Bank Group, the IMF has predicted Pakistan's economy will grow by 2pc this year and 3.5pc in the next. The estimates are based on the Fund's recently concluded review of Pakistan's macroeconomic position under the $3bn Stand-by Arrangement. Even these projections hinge on continued fiscal consolidation and a new IMF bailout. No wonder Finance Minister Muhammad Aurangzeb is in Washington to lobby for a larger, three-year Fund programme of $6bn-8bn to support planned economic reforms.

As stated by him, the country will request a three-year programme "to help execute the structural reform agenda". Referring to reduced market volatility and economic stabilisation achieved under the SBA, he said that market sentiment was more positive in the current fiscal year. "It's really for that purpose that we have initiated the discussion with the Fund to get into a larger and an extended programme," he explained.

If approved, it will be Pakistan's 24th engagement with the IMF since 1958. Will this new programme break what the minister was reported to have referred to as the "chain of financial struggles and bailouts"?

The fact is that Pakistan has never been able to complete a longer programme with the Fund because of a breach in policy goals thanks to political reasons. What will be different this time around? So far, the minister has shown an understanding of the issues that have dragged the economy down and his commitment to implementing long-delayed structural reforms without any proviso.

"If we do not go through the structural reforms, unfortunately, we will still be looking at another programme," he told an Atlantic Council meeting. He knows what needs to be done and said that Pakistan does not require "too many policy prescriptions". The problems are well-known and the country is aware of what is needed to stabilise the economy. The challenge is follow-through and implementation.

Unlike his predecessors, Mr Aurangzeb intends to discuss the programme's "growth aspects" with the IMF as well. But he has not elaborated on how he plans to grow the economy without breaching the programme policy steps that must focus on tough stabilisation reforms.

With the economy going through its worst crisis, the budget for next year is set to reveal how steadfast the government will be in its commitment to undertaking reforms, and how Mr Aurangzeb balances stabilisation with relatively faster growth.

 

[ghazi]

[H2]Aurangzeb pledges aggressive reforms at IMF meeting[/H2]
Anwar Iqbal
April 18, 2024

Finance Minister Muhammad Aurangzeb speaks at the JP Morgan seminar on Pakistan's Economic Policy Outlook in Washington D.C., United Stated on APril 17, 2024. — Photo via PID

WASHINGTON: In a meeting with the IMF chief and some members of its board of governors, Finance Minister Muhammad Aurangzeb has reaffirmed Pakistan's resolve to carry out "aggressive reforms" to stabilise its economy.

These discussions were part of a meeting of Middle East and North Africa (MENAP) ministers and governors with IMF Managing Director Kristalina Georgieva held on Tuesday.

Mr Aurangzeb "underscored aggressive reforms, including broadening the tax net, privatising loss-making SOEs, expanding social safety nets and facilitating the private sector," his team said in a statement issued a day after the meeting.

The minister underscored the implications of geo-economic fragmentation on Pakistan and expressed gratitude to the IMF, multilateral development banks, and "time-tested sincere bilateral partners" for their unwavering support during these trying times.

He stressed the significance of reallocating a nation's special drawing rights (SDRs) within the IMF to tackle economic hurdles effectively. Additionally, he highlighted the necessity of reassessing surcharge policies and giving precedence to the IMF's Resilience and Sustainability Trust (RST) to address climate vulnerabilities.

Assures lender of broadening tax net, privatising SOEs, expanding social safety nets, facilitating private sector
​

The IMF's Resilience and Sustainability Trust (RST) has been in operation for more than a year, with the initial 17 countries securing commitments of financial assistance. Pakistan, identified as a low emitter yet severely impacted by climate change, is also seeking aid from this fund.

Advocating for a more proactive and responsive Global Financial Safety Net to address heightened risks, the minister applauded the IMF's renewed focus on Capacity Building through Regional Capacity Development Centres (RCDCs).

The minister advocated for a proactive global financial safety net to address heightened risks and appreciated the IMF's renewed emphasis on capacity-building through regional capacity development centres. He also stressed the importance of collaborative efforts for sustainable economic development.

Pakistan, in pursuit of another long-term package — its 24th thus far — from the IMF, has formulated a comprehensive economic recovery plan. This plan encompasses three primary components: taxation, energy, and streamlining the privatisation of state-owned enterprises (SOEs), including PIA.

The IMF board is scheduled to convene on April 29 to deliberate on releasing the final tranche of its current programme with Pakistan. Subsequently, discussions between IMF staff and Islamabad regarding the new package are anticipated to commence.

During Tuesday's meeting, the IMF acknowledged Pakistan's progress in meeting its conditions, while Pakistani officials advocated for a new plan tailored more specifically to Pakistan's needs.

Later, at a JP Morgan Seminar on Pakistan's Economic Policy Outlook, Mr Aurangzeb emphasised positive economic indicators such as the robust performance of the agriculture sector, decreasing inflationary pressures, a stable exchange rate, shrinking trade deficit, and robust remittance inflows.

He informed the participants that Pakistan was committed to engaging in a broader and extended programme with the IMF.

At a meeting with Ajay Banga, president of the World Bank Group, the minister emphasised Pakistan's advancements under the nine-month SBA programme and the ongoing reforms in key sectors such as taxation, energy and privatisation.

Both parties acknowledged the necessity of establishing a 10-year rolling Country Framework Plan.

The World Bank president pledged his complete support for Pakistan's reform initiatives and digitalisation efforts aimed at stabilising the economy and boosting revenues. Additionally, the minister extended an invitation for the president to visit Pakistan.

Published in Dawn, April 18th, 2024

 

[ghazi]

[H2]Finance minister does not expect significant rupee devaluation in IMF negotiations[/H2]
Dawn.com
April 18, 2024

Finance Minister Muhammad Aurangzeb has stated that the government does not expect significant rupee devaluation as part of negotiations with the International Monetary Fund (IMF), according to a report by Bloomberg.

The finance minister is currently in Washington to attend the spring meetings organised by the IMF and the World Bank (WB).

Aurangzeb stated earlier that Pakistan had initiated discussions with the Fund over a new multi-billion dollar loan agreement to support its economic reform programme, adding that the country will at least be requesting for a three-year programme.

In an interview with Bloomberg published today, the minister said there would be no reason for the rupee to depreciate more than the range of about 6 per cent to 8pc seen in a typical year.

"Pakistan last devalued its currency in January 2023," the report noted.

 

[ghazi]

[H2]IMF 'very receptive' in terms of agreeing to consider larger, longer programme: finance minister[/H2]
Dawn.com
April 22, 2024

Finance Minister Muhammad Aurangzeb speaks during an interview with AFP at the Embassy of Pakistan in Washington, DC on April 15. — AFP

Finance Minister Muhammad Aurangzeb has stated that Pakistan is on track to secure a new loan from the International Monetary Fund (IMF), adding that the money lender had been "very receptive in terms of agreeing to consider a larger, longer programme".

 

[ghazi]

[H3]IMF board to finalise $1.1b disbursement on Monday[/H3]
Funding is last tranche of $3b standby arrangement which was secured last summer and which runs out this month

Reuters
April 24, 2024

The International Monetary Fund (IMF) logo is seen outside the headquarters building in Washington, US, September 4, 2018. PHOTO: REUTER


KARACHI: The executive board of the International Monetary Fund (IMF) will meet on April 29 to discuss the approval of $1.1 billion funding for Pakistan, the fund said on Wednesday.

The funding is the second and last tranche of a $3 billion standby arrangement with the IMF, which was secured last summer to avert a sovereign default and which runs out this month.

The country is seeking a new long-term, larger IMF loan. Finance Minister Muhammad Aurangzeb has said Islamabad could secure a staff-level agreement on the new programme by early July.

Islamabad says it is seeking a loan over at least three years to help macroeconomic stability and execute a long-due and painful structural reforms, though Aurangzeb has declined to detail what size of programme the country seeks.

Islamabad is yet to make a formal request, but the Fund and the government are already in discussions.

If secured, it would be the 24th IMF bailout for Pakistan.

The $350 billion economy faces a chronic balance of payment crisis, with nearly $24 billion to repay in debt and interest over the next fiscal year - three-time more than the central bank's foreign currency reserves.

The finance ministry expect the economy to grow by 2.6% in the current fiscal year ending June, while average inflation is projected to stand at 24%, down from 29.2% in fiscal year 2023/2024. Inflation soared to a record high of 38% last May.

 

[ghazi]

[H3]IMF Executive Board to meet April 29 on Pakistan's SBA[/H3]

• Approval will pave way for inflow of nearly $1.1bn

Reuters
April 24, 2024

KARACHI: The Executive Board of the International Monetary Fund (IMF) will meet on April 29 to discuss the approval of $1.1-billion funding for Pakistan, the lender said on Wednesday.

The funding is the last tranche of a $3-billion Stand-By Arrangement (SBA) with the IMF, which runs out this month.

Pakistan is also seeking a new long-term, larger IMF loan.

Pakistan's Finance Minister, Muhammad Aurangzeb, has said Islamabad could secure a staff-level agreement on the new program by early July.

Islamabad says it is seeking a loan over at least three years to help macroeconomic stability and execute long-due and painful structural reforms, though Aurangzeb has declined to detail what size the country seeks.

Islamabad has yet to make a formal request, but the Fund and the government are already in discussions.

If secured, it would be the 24th IMF bailout for Pakistan.

The $350-billion economy faces a chronic balance of payment crisis, with nearly $24 billion to repay in debt and interest over the next fiscal year - three times more than its central bank's foreign currency reserves.

Pakistan's finance ministry expects the economy to grow by 2.6% in the current fiscal year ending June, while average inflation is projected to stand at 24%, down from 29.2% in fiscal year 2023/2024. Inflation soared to a record high of 38% last May.

 

[ghazi]

IMF approves disbursement of $1.1 billion loan tranche

Pakistan completes second bailout package in its history of 23 deals

Shahbaz Rana
April 29, 2024

ISLAMABAD: The International Monetary Fund (IMF) on Monday approved disbursement of $1.1 billion last loan tranche, marking the successful end of the second bailout package in eight years but it took heavy toll in the shape of unbearable inflation and slowing economic wheel.

The Executive Board of the IMF approved the completion of the second review of the $3 billion Standby Arrangement, confirmed the Ministry of Finance. This also paved the way for the release of the last loan tranche of $1.1 billion. The IMF board also backed Pakistan's intent to get another bailout package to ensure 'permanency in economic stabilisation and deepen structural reforms'.

The global lender approved the completion of the second review of the arrangement hours after Prime Minister Shehbaz Sharif said that the country's debt trap had become a 'death trap', calling it the biggest challenge for his government. He made these remarks while addressing the closing session of the World Economic Forum (WEF) in Riyadh, Saudi Arabia.

"We have a serious problem of inflation before us. And then we have a debt trap, I prefer calling it a death trap, which has crumbled our economy," said Shehbaz. The PM also met with the Managing Director of the IMF Kristalina Georgieva in Saudi Arabia on Sunday to discuss the next bailout programme.

Deviating from its transparency policy, the IMF did not list Pakistan in the April 29th calendar being issued on its website.

Prime Minister Shehbaz, Governor State Bank of Pakistan Jameel Ahmad and the Secretary Finance Imdad Ullah Bosal played pivotal roles in first securing the deal in June 2023 and then pushing it towards the finishing line.

In July last year, Pakistan had signed the nine-month programme for the $3 billion, which stabilised the economy and brought the current account deficit under control. However, the budget deficit remained out of the control and is going to end around 7.4% of the GDP as per IMF's own estimates.

It is the second bailout package that the country completed in past eight years. Last time, it had successfully implemented the $6 billion Extended Fund Facility from 2013-2016. But it again had to seek another bailout package in 2019, which remained unsuccessful.

Former prime minister Shahid Khaqan Abbasi said on Sunday that seeking another IMF programme was akin to "admitting failure".

The SBA also led to a significant increase in the burden on the people in the shape of higher taxes on the salaried class and an exorbitant hike in the prices of fuel, gas and electricity.

The central bank lost its autonomy to the IMF and has remained unable to lower the interest rates despite a significant reduction in the current and the forwarding looking inflation projections.

It is high time now that the IMF should allow space for some economic growth, as the poverty rate is high at 40% with 10 million more Pakistanis on the verge of slipping into the poverty trap.

During the staff level discussions, Pakistan had assured the IMF that it will "continue with the timely implementation of power and gas tariff adjustments to keep average tariffs consistent with cost recovery while protecting the vulnerable through the existing progressive tariff structures, thus avoiding any net circular debt accumulation in FY24".

Since then there has been consistent significant increase in the electricity prices in shape of monthly fuel cost adjustment. The government also twice increased the gas prices under the nine-month SBA arrangement.

Yet, the total power and gas sector circular debt amounted to over Rs5.7 trillion or 5.4% of the size of the economy.

Pakistan has committed to the IMF that it would keep the circular debt restricted to Rs2.310 trillion by June 2024 – equal to last year's level. However, the flow of the debt has already reached Rs2.7 trillion, which the government plans to reduce to the agreed level through a combination of budgeted subsidies and tariff hikes.

Under the $3 billion Standby Arrangement, Pakistan had committed to keep the primary budget surplus at 0.4% of the GDP. But a World Bank report of this month stated that the government would miss the primary budget surplus target.

Despite the IMF programme, Pakistan could not attract sufficient foreign debt related inflows. As a result, the central bank also had to resort to over $5 billion purchases from the market to keep the reserves stable around $8 billion.

The international credit rating agencies also did not improve Pakistan's credit ratings in spite of the successful completion of the IMF programme. The highly risky credit ratings kept the foreign private lenders away from Pakistan.

The IMF noted that Pakistan's economic and financial position had improved in the months since the first review. It added that growth and confidence in the country continued to recover on the back of a prudent policy management as well as the resumption of inflows from multilateral and bilateral partners.

For the ongoing fiscal year, the government had set the GDP growth target at 3.5% and the inflation at 21%. The last IMF report showed that Pakistan's economy may grow by 2% and its inflation rate would be around 25%.

The only area of success under the IMF deal was that the country performed well in reduction of the current account deficit, which even remained better than the IMF's expectations. This was achieved by restricting imports as there has not been much improvement in the exports. The remittances remained under stress during the programme period.

Pakistan has already expressed an interest in a successor medium-term Extended Fund Facility programme with the aim of permanently resolving the country's fiscal and external sustainability weaknesses, strengthening its economic recovery as well as laying the foundations for strong, sustainable, and inclusive growth.

 

[Saif]

Pakistan reaches new $7 billion loan deal with IMF

Pakistan has reached a staff-level agreement for a new $7 billion loan deal, the International Monetary Fund said Friday, the country’s latest turn to the global lender for help in propping up its economy and dealing with its debts through big bailouts. Earlier this year, the IMF approved th

thefinancialexpress.com.bd

Pakistan reaches new $7 billion loan deal with IMF
Published :
Jul 13, 2024 19:15
Updated :
Jul 13, 2024 19:15

The International Monetary Fund (IMF) logo is seen outside the headquarters building in Washington, US, September 4, 2018. Photo : REUTERS/Yuri Gripas/Files

Pakistan has reached a staff-level agreement for a new $7 billion loan deal, the International Monetary Fund said Friday, the country's latest turn to the global lender for help in propping up its economy and dealing with its debts through big bailouts.
Earlier this year, the IMF approved the immediate release of the final $1.1 billion tranche of a $3 billion bailout to Pakistan. Finance Minister Muhammad Aurangzeb said the government planned to seek a long-term loan to help stabilize the economy after the end of that bailout package.

The new loan deal will last for 37 months. It is aimed at strengthening fiscal and monetary policy as well as reforms to broaden the tax base, improve the management of state-owned enterprises, strengthen competition, secure a level playing field for investment, enhance human capital, and scale up social protection through increased generosity and coverage in a major welfare program, the IMF said.

"The program aims to capitalize on the hard-won macroeconomic stability achieved over the past year by furthering efforts to strengthen public finances, reduce inflation, rebuild external buffers and remove economic distortions to spur private sector-led growth," said Nathan Porter, IMF's mission chief to Pakistan.

The agreement is subject to approval by the IMF's executive board.

Pakistan's new coalition government presented its first budget in parliament last month, promising an increase of up to 25 per cent in the salaries of government employees and setting an ambitious tax collection target.

The finance minister said Pakistan wants to collect 13 trillion rupees ($44 billion) in taxes, which would be 40 per cent more than in the current fiscal year.

Aurangzeb also said the government will ensure that the number of taxpayers increases. Only about 5 million people in Pakistan pay taxes.

Analysts said the new budget of about $68 billion — up from $50 billion in the last fiscal year — was aimed at qualifying for a long-term IMF loan of $6 billion to $8 billion to help stabilize the economy. Pakistan in 2023 nearly defaulted on the payment of foreign debts.​

 

[Lulldapull]

Wow! what a way to run a country. Perpetually in debt.

 

[Ghazi52]

The Executive Board of the International Monetary Fund (IMF) will convene today in Washington to approve a critical $7 billion loan package for Pakistan, aiming to stabilize the country's fragile economy.

This new bailout program, spanning 37 months, marks Pakistan's 24th IMF assistance package.

With its approval, Pakistan will also be eligible to receive funds from other international organizations and countries.

As per sources, Pakistan is likely to get $1 billion or $1.1 billion as the first instalment of the loan by September 30.

After the approval of the loan program, the second installment will also be received in the same financial year, the sources added.

 

[Ghazi52]

 

[Ghazi52]

IMF board approves $7bn Extended Fund Facility for Pakistan: PMO​

Anwar Iqbal
September 25, 2024

International Monetary Fund (IMF) logo is seen at the IMF headquarters buiding — Reuters File Photo

https://whatsapp.com/channel/0029VaMc238IiRov8okfYy3n
The International Monetary Fund’s board (IMF) on Wednesday approved a $7 billion Extended Fund Facility (EFF) for Pakistan, providing a critical boost to the country’s struggling economy.

The development was announced by the Prime Minister’s Office (PMO) while a statement is expected from the IMF. The PMO said the premier expressed his satisfaction with the programme’s approval.

“The implementation of economic reforms is going on rapidly,” he said, adding that the government would continue to work hard to achieve goals related to economic development after achieving economic stability.

 

[Ghazi52]

Primary goals of new deal​

The primary goals of the new bailout package include stabilising Pakistan’s economy by consolidating public finances, rebuilding foreign exchange reserves, and reducing fiscal risks from state-owned enterprises. The programme also aims to create a more conducive environment for private-sector-led growth.

The loan deal, finalised in July, was contingent on Pakistan securing $12bn in financial commitments from key allies such as Saudi Arabia, China, and the UAE.

Pakistan secured $5bn in deposits from Saudi Arabia, $4bn from China, and $3bn from the UAE. An additional condition from the IMF required Pakistan to obtain $2bn in external funding from bilateral and commercial sources.

The remaining financing gap of $2-2.5bn was bridged through various means, including Saudi Arabia’s oil facility, a $400 million loan from the International Islamic Trade Finance Corporation (ITFC) and contributions from Middle Eastern commercial banks, such as Standard Chartered Bank.

 

[Ghazi52]

The fears of approval were laid to rest after the State Bank Governor Jameel Ahmad said that Pakistan planned to raise up to $4bn from banks by the next fiscal to plug the gap. According to him, Pakistan was in the “advanced stages” of securing $2bn in additional external financing required for IMF approval.

Pakistan has long relied on IMF programmes to avoid default, frequently turning to financial assistance from friendly nations to meet IMF requirements.

This is Pakistan’s 25th IMF programme since 1958 and its 6th under the EFF framework. Despite the influx of funds, the programme leaves unaddressed a crucial issue: restructuring Pakistan’s external and domestic debt, which consumed 81 per cent of the nation’s tax revenues in the last fiscal year.

Faced with chronic mismanagement, Pakistan’s economy had found itself on the brink, challenged by the Covid-19 pandemic, the effects of the war in Ukraine and supply difficulties that fuelled inflation, as well as record flooding that affected a third of the country in 2022.

In February 2023, the rupee had undergone a historic devaluation of 15pc while the foreign reserves shrunk to a meagre $3.7bn, exacerbating fears that Pakistan was heading towards a default without a comprehensive IMF programme to prop it up. However, the country managed to clinch a nine-month $3bn IMF deal in June after addressing the Fund’s concerns about its reform agenda — with reserves hovering around $3bn.

In April, the finance minister had confirmed that the country had initiated talks for a longer programme to support strengthening public finances, restoring the energy sector’s viability, returning inflation to the target, and promoting private-led activity.

 

[Ghazi52]

To meet the Fund’s criteria, the government announced new tax measures in several areas to generate additional revenue in the coming fiscal year in the finance bill, which included a 48 per cent increase in direct taxes, 35pc hike in indirect taxes, and a whopping 64pc increase in non-tax revenue such as petroleum levies.

The latest bailout, coming to Pakistan in the form of loans, follows a commitment by the government to implement reforms, including a major effort to broaden the country’s tax base.

In a nation of over 240m people and where most jobs are in the informal sector, only 5.2m filed income tax returns in 2022.

The government has amped up its efforts to raise nearly $46bn in taxes for the year, which includes drastic measures by the Federal Board of Revenue (FBR) such as ordering the telecommunications authority to block the connections of 210,000 SIM cards.

 

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IMF inflow: SBP-held foreign exchange reserves hit 2.5-year high, shoot above $10.7bn

Total liquid foreign reserves held by the country stand at $15.983 billion

 

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Nathan Porter, director of the International Monetary Fund’s (IMF’s) mission for Pakistan, in a recent interview with the Voice of America, while commenting on Prime Minister Shehbaz Sharif’s statement that this would be the last IMF programme of Pakistan, is reported to have stated that this could be possible if Pakistan sincerely acted on economic reforms.

The crux of Porter’s statement is “if Pakistan sincerely acted on economic reform”.

Implementation of economic reforms has always been the weak link in the IMF programmes - often condoned by the IMF itself. Reforms which truly matter like power sector fiscal viability, privatization of loss-making entities and enhancing the tax revenues through widening of the tax net and efficient implementation remain un-accomplished while moving from one IMF programme to another.

Added now to these long pending requirements are the economic reforms laid out in the current (25th) IMF programme. They are far more extensive, complex and challenging and are required to be accomplished in the next 37 months when this programme will run out. So far it is not in public knowledge if the government has prepared a road map with defined milestones to achieve this ambitious target of “no further IMF debt programme”.

Unlike in the past, when the provincial budgets were out of the purview of the IMF, the new programme is expanded to the provincial budgets and their revenues. Nearly one dozen IMF conditions directly impact the provinces under the new programme.

 

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the agricultural income tax rate is to increase from 12-15 per cent to 45 per cent in January next year. There will be no support price system for food and subsidies on agriculture. All the provincial governments will refrain from giving further subsidies on electricity and gas.

Under censorship is also the fiscal discipline of the country. One of such conditions is that Pakistan needs to show a primary budget surplus of 4.2 per cent of the Gross Domestic Product (GDP) during the three-year programme period.

The economists fear that this would significantly squeeze non-interest expenses and put an additional tax burden of 3 per cent on the existing taxpayers. Critical is Pakistan’s external debt repayments obligations for the next four years of $ 100 billion.

Pakistan is reported to have committed to the IMF that it would refrain from repaying the USD 12.7 billion debt to Saudi Arabia, China, the UAE, and Kuwait during the programme period. This may exhaust Pakistan’s chance of further bailouts from these sources.

While the government’s thumbs-up on the rising stock market, falling inflation and significant increase in taxpayers’ base can be celebrated for a while, but this alone will not move the country out of the IMF programme. The government needs massive revenues to retire loans, meet the expenditure to run the government and sustain loss-making public sector enterprises and the ailing power sector. With much of the industry, real estate and investors out of the revenue chain, the massive revenue generation is unlikely.

 

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Critical for Foreign Direct Investment (FDI) is the country perception. The prevailing political and institutional tensions within the country are undermining the country’s perception as an attractive destination for investment.

The IMF report has underlined the importance of political stability to achieve fiscal discipline and stability. The Asian Development Bank warned that the rising political and institutional tensions may make it difficult to implement the reforms that Pakistan has committed to deliver to the IMF. The ADB said these reforms were crucial to ensuring that external lenders keep lending to Pakistan.

The cherished goal to make the current 25th IMF debt programme as the last one sounds great. The least make-believe assurance the nation needs in this regard is a roadmap with defined milestones for the next 37 months, when the current programme will run out and the nation will be on its own.

 

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IMF spells out threats to reform momentum​

• Says political economy considerations and pressures from vested interests could delay or weaken the reform momentum and put at risk still-brittle stability

Tahir Amin
October 12, 2024

ISLAMABAD: Political economy considerations and pressures from vested interests could delay or weaken the reform momentum and put at risk still-brittle stability, says the International Monetary Fund (IMF).

The Fund in its latest report stated resurgence in political or social tensions could weigh on policy and reform implementation. Political economy considerations and pressures from vested interests could delay or weaken the reform momentum and put at risk still-brittle stability.

The external environment remains challenging as well, with still tight global financing conditions, volatile commodity prices, and elevated geopolitical tensions.

Notwithstanding the new government’s intent to deepen reforms under a new Fund-supported program, political uncertainty remains significant, and pressures for easing policies and providing tax concessions and subsidies are strong.

Policy slippages, including particularly on needed revenue measures, together with lower external financing, could undermine the narrow path to debt sustainability, given the high level of gross financing needs, and place pressure on the exchange rate and on banks to finance the government (further exacerbating crowding out of the private sector, which could entrench a low-growth—low-financial-development equilibrium).

Geopolitically driven higher commodity prices or tighter global financial conditions could also adversely affect external stability.

The report also noted that the Fund faces many major enterprise risks associated with a new program. Notably, business risks are elevated due to the potential for the program to go off-track, as well as, Pakistan’s challenging security situation, which could adversely impact FDI, among others.

Reputational risks would arise if the Fund were perceived as treating Pakistan differently from other members that ostensibly enjoy less support. Alternatively, not proceeding with a new program also raises reputational risks as the new authorities, or other members, may accuse the Fund of not being even-handed, especially following the successful SBA.

Although near-term financial risks have declined since SBA approval, they remain very elevated and are to be mitigated through phased access, burden sharing, and adequate financing assurances.

Operational risks concerning staff’s in-country activities persist, although Fund activities are closely coordinated in line with policies and supported by the United Nations Department of Safety and Security (UNDSS)

The report also noted that notwithstanding recent progress, deep structural challenges continue to weigh on Pakistan’s economic prospects.

Pakistani living standards have declined relative to peers in South and South East Asia over the past decades, reflecting weak policies, inadequate investment in human and physical capital, and distortions from an outsized role of the state.

At the same time, structural fiscal policy weaknesses and repeated boom-bust cycles have increased external financing needs and depleted buffers, leaving a narrow path to fiscal and external sustainability. To build on the hard-won transient stability created over the past year, sound policies and reforms need to be strengthened and sustained.

Copyright Business Recorder, 2024

 

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Fund sets 22 structural benchmarks and conditionalities​

Tahir Amin
October 12, 2024

ISLAMABAD: The International Monetary Fund (IMF) has set 22 structural benchmarks (SBs) and conditionalities for the new $7 billion Extended Fund Facility (EFF) program, including not granting tax amnesties, not issuing any new preferential tax treatment (including exemptions, zero rating, tax credits, accelerated depreciation allowances, or special rates), as well as average premium between the interbank and open market rate to be no more than 1.25 percent during any consecutive 5 business days.

The Fund in its latest report “2024 Article IV Consultation and request for an Extended Arrangement under The Extended Fund Facility” noted that 22 SBs have been set.

The SBs on fiscal side include;

(i) do not grant tax amnesties, and do not issue any new preferential tax treatment (including exemptions, zero rating, tax credits, accelerated depreciation allowances, or special rates) with the rational to protect tax revenue (continuous),

(ii) seek ex-ante parliamentary approval for any expenditures that are non-budgeted or that exceed the budgetary appropriation with the rational of improved parliamentary oversight of budget execution (continuous),

(iii) approve a National Fiscal Pact devolving some spending functions to the provinces aimed at addressing the mismatch of federal and provincial revenues and expenditures (end-September 2024),

(iv) share with the IMF staff a report detailing actions to reduce the federal government’s footprint aimed at reducing the footprint of the state (end-September 2024),

(v) each province amends their Agriculture Income Tax legislation and regime to fully align it with the federal personal income tax regime for small farmers and the federal corporate income tax regime for commercial agriculture, so that taxation can commence from January 1, 2025 to protect tax revenue (end-October 2024),

(vi) fully implement compliance risk management measures in Large Taxpayer Units in large markets in Islamabad, Karachi, and Lahore Regional Offices to improve tax compliance (end-December 2024),

(vii) develop and publish on the Ministry of Planning website: (i) the criteria for project selection, including a scorecard, detailing the weight assigned to each criterion and the methodology for calculating the score; and (ii) the annual limit on the total size of new projects entering the PSDP portfolio for better public investment management (end-January 2025), and

(viii) introduce a 5 percent FED on fertilizer and pesticide to protect tax revenue (end-June 2025).

On the governance, two SBs have been set which include;

(i) amend the Civil Servants Act to ensure that asset declarations of high-level public officials (including assets beneficially owned by them and a member of their family) are digitally filed and publicly accessible (with sufficient protection over private information) through the FBR, with a robust framework for risk-based verification by a single authority.

The rationale is to enhance the effectiveness of the anti-corruption framework (end-February 2025) and

(ii) publish the full Governance and Corruption Diagnostic Assessment report to publicly identify critical governance vulnerabilities (end-July 2025).

One SB is set on social sector which is annual inflation adjustment of the unconditional cash transfer (Kafaalat) to maintain purchasing power in real terms (end-January 2025).

Five SBs have been set on monetary and financial sector including;

(i) average premium between the interbank and open market rate will be no more than 1.25 percent during any consecutive 5 business day period to maintain FX market functioning (continuous),

(ii) parliamentary approval of amendments to the bank resolution and deposit insurance legislation, in a manner that preserves the integrity of the draft legal amendments to strengthen crisis management toolkit (end-October 2024),

(iii) place undercapitalized private banks under resolution unless (i) these banks are fully recapitalized by end-October 2024; or (ii) a legally binding agreement is in place by end-October 2024 towards a merger with other banks or with a new sponsor that would achieve full recapitalization by April 2025 to enforce regulatory standards (end-November 2024),

(iv) in consultation with Fund staff, revise regulations and underlying methodologies on risk mitigating measures, including enhanced collateral policy and by requiring counterparties to be financially sound to improve safeguards in monetary policy operations (end-December 2024), and

(v) implement revised regulations on risk mitigating measures to improve safeguards in monetary policy operations (end-September 2025).

Copyright Business Recorder, 2024