Washington, DC – July 13, 2022:
An International Monetary Fund (IMF) team, led by Nathan Porter, has
finalized discussions for the combined seventh and eight reviews of
Pakistan’s economic program supported by an IMF Extended Fund Facility
(EFF). At the conclusion of the discussions, Mr. Porter issued the
following statement:
“The IMF team has reached a staff-level agreement (SLA) with the Pakistan
authorities for the conclusion of the combined seventh and eight reviews of
the EFF-supported program. The agreement is subject to approval by the
IMF’s Executive Board. Subject to Board approval, about $1,177 million (SDR
894 million) will become available, bringing total disbursements under the
program to about $4.2 billion. Additionally, in order to support program
implementation and meet the higher financing needs in FY23, as well as
catalyze additional financing, the IMF Board will consider an extension of
the EFF until end-June 2023 and an augmentation of access by SDR 720
million that will bring the total access under the EFF to about US$7
billion.
“Pakistan is at a challenging economic juncture. A difficult external
environment combined with procyclical domestic policies fueled domestic
demand to unsustainable levels. The resultant economic overheating led to
large fiscal and external deficits in FY22, contributed to rising
inflation, and eroded reserve buffers.
“To stabilize the economy and bring policy actions in line with the
IMF-supported program, while protecting the vulnerable, policy priorities
include:
-
Steadfast implementation of the FY2023 budget.
The budget aims to reduce the government’s large borrowing needs by
targeting an underlying primary surplus of 0.4 percent of GDP,
underpinned by current spending restraint and broad revenue
mobilization efforts focused particularly on higher income taxpayers.
Development spending will be protected, and fiscal space will be
created for expanding social support schemes. The provinces have agreed
to support the federal government’s efforts to reach the fiscal
targets, and Memoranda of Understanding have been signed by each
provincial government to this effect.
-
Catch-up in power sector reforms
. On the back of weak implementation of the previously agreed plan, the
power sector circular debt (CD) flow is expected to grow significantly
to about PRs 850 billion in FY22, overshooting program targets,
threatening the power sector’s viability, and leading to frequent power
outages. The authorities are committed to resuming reforms including,
critically, the timely adjustment of power tariff including for the
delayed annual rebasing and quarterly adjustments, to improve the
situation in the power sector and limit load shedding.
-
Proactive monetary policy
to guide inflation to more moderate levels
. Headline inflation exceeded 20 percent in June, hurting particularly
the most vulnerable. In this regard, the recent monetary policy
increase was necessary and appropriate, and monetary policy will need
to be geared towards ensuring that inflation is brought steadily down
to the medium-term objective of 5–7 percent. Importantly, to enhance
monetary policy transmission, the rates of the two major refinancing
schemes EFS and LTFF (which have over recent months been raised by 700
bps and 500 bps respectively) will continue to be linked to the policy
rate. Greater exchange rate flexibility will help cushion activity and
rebuild reserves to more prudent levels.
-
Reducing poverty and strengthen social safety.
During FY22, the unconditional cash transfer (UCT) Kafalat scheme
reached nearly 8 million households, with a permanent increase in the
stipend to PRs 14,000 per family, while a one-off cash transfer of PRs
2,000 (Sasta Fuel Sasta Diesel, SFSD) was granted to about 8.6 million
families to alleviate the impact of rampant inflation. For FY23, the
authorities have allocated PRs 364 billion to BISP (up from PRs 250 in
FY22) to be able to bring 9 million families into the BISP safety net,
and further extend the SFSD scheme to additional non-BISP, lower-middle
class beneficiaries.
-
Strengthen governance.
To improve governance and mitigate corruption, the authorities are
establishing a robust electronic asset declaration system and plan to
undertake a comprehensive review of the anticorruption institutions
(including the National Accountability Bureau) to enhance their
effectiveness in investigating and prosecuting corruption cases.
“Steadfast implementation of the outlined policies, underpinning the SLA
for the combined seventh and eighth reviews, will help create the
conditions for sustainable and more inclusive growth. The authorities
should nonetheless stand ready to take any additional measures necessary to
meet program objectives, given the elevated uncertainty in the global
economy and financial markets.
“The IMF team thanks the Pakistani authorities, private sector, and
development partners for fruitful discussions and cooperation during the
discussions.”
