Press Release: IMF Executive Board Approves US$7.6 Billion Stand-By Arrangement for Pakistan
IMF News, November 24, 2008
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- Published: November 24, 2008
IMF arrangement approval and financing terms
- The Executive Board approved a 23-month Stand-By Arrangement for Pakistan equivalent to SDR 5.169 billion (about US$7.6 billion).
- Upon Board approval, SDR 2.067 billion (about US$3.1 billion) becomes immediately available to Pakistan; the remaining amount will be phased in, subject to quarterly reviews.
- The total IMF resources made available under the arrangement equal 500 percent of the country's quota.
- The arrangement was approved under the Fund's fast-track Emergency Financing Mechanism procedures.
Program objectives and overarching strategy
- Two key objectives:
- Restore macroeconomic stability and confidence through a tightening of macroeconomic policies.
- Ensure social stability and adequate support for the poor and vulnerable in Pakistan.
- The program seeks to achieve these interrelated objectives by combining fiscal consolidation, tighter monetary policy, and strengthened social assistance.
Fiscal policy measures and targets
- The program targets a significant reduction in the fiscal deficit:
- Fiscal deficit will be reduced from 7.4 percent of GDP in 2007/2008 (July-June) to 4.2 percent in 2008/2009 and 3.3 percent in 2009/2010.
- Primary fiscal stance:
- Primary balance targeted at 0.6 (2008/2009) and 1.6 (2009/2010) percent of GDP as shown in the program summary table.
- Main fiscal measures to achieve the adjustment:
- Phasing out energy subsidies.
- Better prioritizing development spending.
- Implementing strong tax policy and tax administration reforms.
- Central bank financing of the government will be eliminated.
Monetary policy, exchange rate, and banking-sector measures
- Monetary tightening to bring down inflation and strengthen international reserves.
- The State Bank of Pakistan recently increased its discount rate by 200 basis points to 15 percent, and stands ready to further tighten monetary conditions as needed.
- Structural actions include:
- Designing contingency plans to address problem banks.
- Measures to improve monetary management.
- Strengthening the SBP's bank resolution capacity.
- Exchange rate policy:
- Pursue a flexible exchange rate policy, with intervention in the foreign exchange market geared toward achieving reserve targets and smoothing excessive exchange rate volatility.
Social protection and external support
- Strengthening and better targeting of social assistance is essential.
- Social safety net spending will be increased by 0.6 percentage point of GDP, to 0.9 percent of GDP in 2008/2009.
- Authorities plan to put in place a comprehensive and effectively-targeted social safety net in close cooperation with the World Bank.
- The IMF's financial support is intended to signal improved macroeconomic prospects and help mobilize additional donor financial support to consolidate reserves and finance the expanded social safety net.
- The program allows for additional development spending if external assistance is higher than projected.
Recent economic developments (Annex summary)
- Macroeconomic deterioration since mid-2007 driven by:
- Adverse security developments.
- Large exogenous price shocks, notably increases in oil and food import prices.
- Global financial turmoil.
- Policy inaction during the political transition and large central bank financing of the fiscal deficit.
- Consequences observed:
- Slower growth.
- Higher inflation.
- Sharp deterioration of the external position.
- Authorities requested IMF financial assistance to restore macroeconomic stability while protecting the poor and vulnerable.
Key macroeconomic indicators (2004/05–2009/10) — selected entries from Pakistan: Main Economic Indicators, 2004/05-2009/10 1/
- Real GDP (change in percent):
- 2004/05: 9.0
- 2005/06: 5.8
- 2006/07: 6.8
- 2007/08: 3.4
- 2008/09 (Proj.): 5.0
- CPI (average):
- 2004/05: 9.3
- 2005/06: 7.9
- 2006/07: 7.8
- 2007/08: 12.0
- 2008/09 (Proj.): 23.0
- 2009/10 (Proj.): 13.0
- CPI (end year):
- 2004/05: 8.7
- 2005/06: 7.6
- 2006/07: 7.0
- 2007/08: 21.5
- 2008/09 (Proj.): 20.0
- 2009/10 (Proj.): 6.0
- Gross national saving (percent of GDP):
- 2004/05: 17.7
- 2005/06: 17.8
- 2006/07: 18.2
- 2007/08: 12.9
- 2008/09 (Proj.): 13.5
- 2009/10 (Proj.): 15.7
- Gross capital formation (percent of GDP):
- 2004/05: 19.1
- 2005/06: 21.7
- 2006/07: 21.3
- General government (percent of GDP) — selected rows:
- Overall balance (excluding grants):
- 2004/05: -3.3
- 2005/06: -4.3
- 2006/07: -7.4
- 2008/09 (Proj.): -4.2
- Primary balance:
- 2004/05: 0.2
- 2005/06: -0.6
- 2006/07: -2.5
- 2008/09 (Proj.): 0.6
- 2009/10 (Proj.): 1.6
- Debt:
- 2004/05: 61.2
- 2005/06: 55.8
- 2006/07: 54.1
- 2007/08: 57.9
- 2008/09 (Proj.): 54.6
- 2009/10 (Proj.): 52.4
- Money and credit (end-of-period, percent change):
- M2:
- 2004/05: 19.3
- 2005/06: 14.9
- 2006/07: 15.3
- 2007/08: 10.8
- 2008/09 (Proj.): 15.9
- Credit to non-government:
- 2004/05: 33.2
- 2005/06: 23.2
- 2006/07: 17.2
- 2007/08: 16.4
- 2008/09 (Proj.): 25.2
- 2009/10 (Proj.): 19.5
- Interest rates (percent) — Six-month treasury bill rate (average, in percent):
- 2004/05: 4.7
- 2005/06: 8.2
- 2006/07: 8.8
- 2007/08: 11.0
- Balance of payments:
- Current account (in percent of GDP):
- 2004/05: -1.4
- 2005/06: -3.9
- 2006/07: -4.8
- 2007/08: -8.4
- 2008/09 (Proj.): -6.5
- 2009/10 (Proj.): -5.7
- External debt (in percent of GDP):
- 2004/05: 31.3
- 2005/06: 28.0
- 2006/07: 26.9
- 2007/08: 26.5
- 2008/09 (Proj.): 31.4
- Reserves (in millions of U.S. dollars) 2/:
- 2004/05: 9,805
- 2005/06: 10,765
- 2006/07: 14,302
- 2007/08: 8,591
- 2008/09 (Proj.): 11,291
- Exchange regime: Managed float
- Present rate (November 21, 2008): PRs 79.3 = US$ 1
- Real effective rate, CPI basis (annual average, 2000=100):
- 2004/05: 5.3
- 2005/06: 0.5
- 2006/07: -0.8
- Quota at the Fund: SDR 1,033.7 million
Press Release No. 08/303 (November 24, 2008).