Cash-strapped Pakistan seeking 24th bailout, confirms IMF

Announcing the staff-level agreement on the successful completion of the existing short-term facility, the IMF has confirmed that cash-strapped Pakistan is seeking a 24th medium-term bailout package for a permanent push towards longstanding structural reforms.

The International Monetary Fund (IMF) in its end-of-mission statement on Wednesday said the cash-strapped country “expressed interest in a successor medium-term Fund-supported programme to permanently resolve Pakistan’s fiscal and external sustainability weaknesses, strengthening its economic recovery, and laying the foundations for strong, sustainable, and inclusive growth”, Dawn News reported.

According to the statement, the delegation from the multinational lender and the Pakistani government came to an agreement at the staff level over the second and final assessment of Pakistan’s stabilization program, which is backed by the USD 3 billion standby arrangement that the IMF approved in July of last year.

More from World

This Week in Explainers: How recovering from Gen-Z protests is a Himalayan task for Nepal Zohran Mamdani says he would arrest Netanyahu if he is elected as NYC mayor, calls Israeli PM 'war criminal'

According to the statement, Pakistan would have access to around USD 1.1 billion, or 828 million special drawing rights (SDR), by the end of April, if the executive board gave its consent.

In the process, the IMF revealed the more extensive, but well-known, conditions of the upcoming program, about which “talks are expected to start in the coming months,” according to the statement.

Just like in previous programs, improvements would continue to be focused on four key areas. The primary goal of the upcoming medium-term program, the Extended Fund Facility, which will last for roughly 36 to 39 months, is to strengthen public finances. This will be accomplished in part by gradually consolidating the budget, expanding the tax base, particularly in undertaxed industries like real estate, retail, and wholesale trade, and agriculture. It will also involve improving tax administration to increase debt sustainability, free up funds for social assistance spending to protect the vulnerable and higher priority development.

Impact Shorts

More Shorts

‘The cries of this widow will echo’: In first public remarks, Erika Kirk warns Charlie’s killers they’ve ‘unleashed a fire’

Trump urges Nato to back sanctions on Russia, calls for 50–100% tariffs on China

The second objective of the next programme would be restoring the energy sector’s viability by accelerating cost-reducing reforms, including improving electricity transmission and distribution, moving captive power demand to the electricity grid, strengthening distribution company governance and management, and undertaking effective anti-theft efforts.

The third key objective is returning inflation to the target, with a deeper and more transparent flexible foreign exchange market supporting external rebalancing and rebuilding foreign exchange reserves.

The fourth and last critical aim would be promoting private-led activity through the actions mentioned above as well as the removal of distortionary protection, advancement of state-owned enterprises (SOEs) reforms to improve the sector’s performance, and the scaling up investment in human capital to make economic growth more resilient and inclusive and enable Pakistan to reach its economic potential.

The IMF staff-level agreement recognised the “strong programme implementation” by the State Bank of Pakistan and the caretaker government in recent months, as well as the new government’s intentions for ongoing policy and reform efforts to move Pakistan from stabilisation to a strong and sustainable recovery.

“Pakistan’s economic and financial position has improved in the months since the first review, with growth and confidence continuing to recover on the back of prudent policy management and the resumption of inflows from multilateral and bilateral partners”, the IMF mission chief to Pakistan, Nathan Porter, noted.

However, growth is expected to be modest this year and inflation remains well above target, Porter said.

Porter emphasised that “ongoing policy and reform efforts were required to address Pakistan’s deep-seated economic vulnerabilities amidst the ongoing challenges posed by elevated external and domestic financing needs and an unsettled external environment”.

The mission also welcomed the new government’s commitment to continue the policy efforts that started under the current bailout package to entrench economic and financial stability for the remainder of this year.

In particular, the authorities recommitted to delivering the fiscal 2024’s general government primary balance target of Rs401 billion (0.4per cent of GDP), with further efforts towards broadening the tax base and continuing with the timely implementation of power and gas tariff adjustments to keep average tariffs consistent with cost recovery while protecting the vulnerable through the existing progressive tariff structures, thus avoiding any net circular debt accumulation in the ongoing fiscal year.

The State Bank also reaffirmed to the IMF that it would maintain a prudent monetary policy to lower inflation and ensure exchange rate flexibility and transparency in foreign exchange market operations.

Pakistan’s new finance minister Muhammad Aurangzeb, who assumed charge last week, had said that his priority was to start negotiations with the Washington-based IMF to bail out the country from its financial woes.

Last year, the IMF Executive Board approved the USD 3 billion Stand-By Arrangement (SBA) for Pakistan, the term for which is set to expire next month. So far, two tranches have been issued while the last one is pending the review of the conditions set by the lender.

Last year, the timely support by the IMF helped the country to avoid a potential default on its external liabilities.

(With agency inputs)