-Deal sets stage to bring country out of economic crisis: PM
-Miftah thanks PM, colleagues for help in achieving results
By Makhdoom
Shehryar Babar
ISLAMABAD: The International Monetary Fund (IMF) confirmed on Thursday that it had reached a staff-level agreement with Pakistan on the combined seventh and eighth reviews for a $6 billion loan facility, a development that paves the way for the release of the much-awaited $1.17bn.
The deal materialised after Pakistan met the IMF’s demand that the country achieve a primary budget surplus of Rs152 to revive the bailout package.
In a statement on its website, the Fund said the agreement was subject to approval by its Executive Board.
“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 extended funded facility (EFF) supported programme. The agreement is subject to approval by the IMF’s Executive Board,” the IMF statement read.
It added: “Subject to Board approval, about $1,177 million (SDR 894m) will become available, bringing total disbursements under the programme to about $4.2bn.” The international money lender said a team led by IMF Mission Chief to Pakistan Nathan Porter finalised the discussions with Pakistan and that it had also agreed to consider extending its EFF, currently worth $6bn, till the end of June 2023, as well as augmenting it by $720m to expand its size to $7bn.
The statement said this decision was taken to support the programme’s implementation, meet Pakistan’s higher financing needs in FY23 and catalyse additional financing.
The announcement by the IMF also comes a dy after after Finance Minister Miftah Ismail told media that talks with the money lender had concluded.
Soon after the IMF released the statement, the Minister also confirmed the news on Twitter.
“I want to thank the Prime Minister, my fellow ministers, secretaries, and especially the Finance Division, for their help and efforts in obtaining this agreement,” he said.
In the same way, Prime Minister Shehbaz Sharif congratulated Ismail and Foreign Minister Bilawal Bhutto-Zardari, as well as their teams, for their efforts.
“The agreement with the Fund has set the stage to bring [the] country out of economic difficulties,” the premier said
In the statement issued today, the Fund noted that Pakistan was at a “challenging economic juncture”.
“A difficult external environment combined with procyclical domestic policies fuelled domestic demand to unsustainable levels,” it said, adding that the resultant economic overheating led to large fiscal and external deficits in FY22, contributed to rising inflation, and eroded reserve buffers.
In light of this, the money lender outlined “policy priorities” for Pakistan to “stabilise the economy and bring [its] policy actions in line with the IMF-supported programme”’.
These priorities include the steadfast implementation of the budget for the current fiscal year, reforms in the power sector, working out a monetary policy to bring down inflation to “moderate levels”, reducing poverty and strengthening governance.
With regards to the budget for fiscal year 2022-23, the IMF noted that it aimed to “reduce the government’s large borrowing needs by targeting an underlying primary surplus of 0.4 per cent of GDP (gross domestic product), underpinned by current spending restraint and broad revenue mobilisation efforts focused particularly on higher income taxpayers”.
“Development spending will be protected, and fiscal space will be created for expanding social support schemes” under the new budget, it said, adding that the provinces had agreed to support the federal government’s efforts to reach the fiscal targets, and memoranda of understanding had been signed by each provincial government to this effect.
The IMF further highlighted that due to the “weak implementation” of the plan previously agreed with it, Pakistan’s power sector circular debt flow was expected to “grow significantly” to around Rs850bn in FY22, “overshooting programme targets, threatening the power sector’s viability, and leading to frequent power outages”.
Therefore, it said, Pakistani authorities were committed to resuming reforms in the power sector, including, “critically, the timely adjustment of power tariff”.
This adjustment, it added, covered the “delayed annual rebasing and quarterly adjustments, to improve the situation in the power sector and limit load shedding”.
On the recent monetary policy increase — wherein the State Bank of Pakistan increased the interest rate by 125 basis points to 15pc — the IMF termed the measure “necessary and appropriate”.
The IMF stressed that the monetary policy “will need to be geared towards ensuring that inflation is brought steadily down to the medium-term objective of five per cent to seven per cent”.
It further emphasised that the rates of export finance scheme (EFS) and long-term financing facility (LTFF) — two major financing schemes — “will continue to be linked to the policy rate” to enhance the monetary policy transmission. In this connection, the IMF statement mentioned that the rates for EFS and LTFF had been raised by 700 bps and 500 bps respectively over the recent months.
