Finance Minister, SBP Governor sign LOI for $3b agreement with IMF.

ISLAMABAD   -   The International Monetary Fund (IMF) has reached a staff-lev­el agreement with the Pakistani authorities on a nine-month Stand-by Arrangement (SBA) in the amount of SDR 2,250 million (about $3 billion or 111 percent of Pakistan’s IMF quota). 

“I am pleased to announce that the IMF team has reached a staff-level agreement with the Pakistani authorities. The new SBA builds on the author­ities’ efforts under Pakistan’s 2019 EFF-supported program which expires end-June. This agreement is subject to approv­al by the IMF’s Executive Board, which is expected to consider this request by mid-July,” Mr Na­than Porter said in a statement on Friday. The Fund’s staff team led by Mr Nathan Porter held in person and virtual meetings with the Pakistani Authorities to discuss a new financing engage­ment for Pakistan under an IMF Stand-by Arrangement (SBA). 

According to the statement, “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. As a result of these shocks as well as some policy missteps—including shortages from con­straints on the functioning of the FX 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. “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. 

The authorities have already taken a series of important ac­tions ahead of the new program: The Parliament has approved FY24 budget in line with the goals of supporting fiscal sustainability and mo­bilising revenue, which will enable greater social and development spending. 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. 

The 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 full and timely implementation of the program will be critical for its success in light of the difficult challenges. “The IMF team would like to thank the authorities for the open and construc­tive dialogue and collaboration that have brought us to today’s successful conclusion.” 

Finance Minister, SBP Governor sign LOI for $3b agreement With IMF Finance Minister Ishaq Dar and Governor State Bank of Pakistan (SBP) Jameel Ahmad have signed the Letter of Intent (LOI) for a nine-month three billion dollars Stand-by Agree­ment (SBA) with the International Monetary Fund (IMF). It was signed at Governor House in Lahore, which was witnessed by Prime Minister Shehbaz Sharif. The IMF had issued the Letter of Intent af­ter reaching a staff level agreement for loan pro­gramme with Pakistan under the memorandum of economic and fiscal policies.