Washington, DC – June 29, 2023: An International Monetary
Fund (IMF) 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).
At the conclusion of the mission, Mr. Porter issued the following
statement:
“I am pleased to announce that the IMF team has reached a staff-level
agreement with the Pakistani authorities on a nine-month Stand-by
Arrangement (SBA) in the amount of SDR2,250 million (about $3 billion or 111
percent of Pakistan’s IMF quota). 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.
“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:
• Parliament has approved FY24 budget in line with the goals of
supporting fiscal sustainability and mobilizing 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 prioritization 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 mobilize 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.”