KARACHI: International Monetary Fund (IMF) has announced the successful completion of the second and final review under the Stand-By Arrangement (SBA) with Pakistan, signaling the readiness for a new phase of economic programs.
Agreement Details: On March 20th, 2024, the IMF issued a press release confirming that its staff and Pakistani authorities have reached a staff-level agreement on the review of the IMF-SBA program. This agreement is now awaiting the green light from the IMF Executive Board. The conclusion of this agreement also marks the provision for the disbursement of the second tranche, totaling USD 1.1 billion (SDR 828 million).
It is noteworthy that Pakistan had previously secured a nine-month SBA deal with the IMF, valued at USD 3 billion (SDR 2.25 billion) in June 2023, following the incomplete conclusion of the earlier Extended Fund Facility (EFF) program.
Timeline for Approval: The review mission was conducted promptly after the establishment of Pakistan’s new cabinet, with expectations for the IMF’s Board to deliberate on the review by late April 2024.
Transition to Recovery Phase: The new agreement underscores the incoming government’s resolve to transition the country from stabilization to a robust and sustainable recovery. Continued policy and reform efforts are emphasized to support this shift.
Recognition of Program Implementation: The IMF has lauded the State Bank of Pakistan and the caretaker government for their commendable implementation of the program in recent months. The interim government’s efforts and the new government’s dedication to ongoing policy and reform measures have been recognized.
Economic and Financial Improvement: Since the first review, Pakistan’s economic and financial stance has shown improvement, attributed to sound policy management and support from multilateral and bilateral partners. While economic growth is gaining momentum and confidence is strengthening, the growth rate is projected to be modest this year, with inflation rates still above the desired target.
Government Commitment to Policy Efforts: The new government has pledged to persist with the policy efforts initiated under the current SBA to ensure economic and financial stability throughout the year. The focal points include:
Achieving a general government primary balance target of 0.4% of GDP for FY24.
Expanding the tax base to boost revenue.
Implementing power and gas tariff adjustments in a timely manner to align average tariffs with cost recovery.
Safeguarding vulnerable populations with progressive tariff structures to avert net circular debt accumulation in FY24.
Monetary Policy and Exchange Rate Management: The State Bank of Pakistan (SBP) is committed to upholding a cautious monetary policy to mitigate inflation and maintain exchange rate flexibility. The SBP is concentrating on transparent operations within the foreign exchange market to bolster economic stability.
This development marks a pivotal moment for Pakistan as it seeks to fortify its economic foundations and pave the way for a prosperous future.