Agreement Satteled Between Pakistan and IMF Deal of $3bn Staff-Level

pakistan and imf deal

The International Monetary Fund has settled a staff-level agreement with Pakistan on a $3bn standby arrangement. The lender said, the South Asian nation waiting for the agreement for a long time and is near the corner of default.

The agreement, subject to approval by the IMF board in July, comes after an eight-month delay and offers some respite to PAK. Which is fighting against the balance of payments crisis and falling foreign exchange reserves.

Finance Minister Ishaq Dar on Pakistan and IMF Deal

“Alhamdullilah,” Finance Minister Ishaq Dar tweeted on Friday after the deal was announced. Dar had said before on Thursday the deal is expected at any time soon.

With high inflation and current foreign exchange reserves, they can only bear one month of controlled imports. Pakistan has been facing a worst economic crisis now than ever. Which analysts say could into default if the IMF deal is not done.

The $3bn funding is for over nine months, which is more than expected for Pakistan. Pakistan was waiting for the release of the remaining $2.5bn from a $6.5bn deal that was done in 2019, which expired on Friday.

pakistan and imf deal

Nathan Porter on Pakistan and IMF Deal

On Thursday IMF official Nathan Porter said on the Pakistan and IMF deal that:

The new standby arrangement is built on the 2019 program, adding that Pakistan’s economy is facing many crises in present times, including natural floods last year and price hikes due to the war between Russia and Ukraine.

Reserves have declined to very low levels even after efforts to reduce imports and the trade deficit. Liquidity conditions in the power sector also remain acute.

The new arrangement will provide a policy anchor and a framework for financial support from multilateral and bilateral partners in the period ahead.

Reforms in the energy sector, which has accumulated nearly 3.6 trillion Pakistani rupees ($12.58bn) in debt, has been a cornerstone of the discussions with the IMF.

Painful reforms

After the arrival of the IMF team in Pakistan Islamabad has taken a slew of policy measures since earlier this year. Including a revised 2023-24 budget last week to meet the lender’s demands.

Further demands by the lender before clinching the deal included reversing subsidies in the power and export sectors. Hikes in energy and fuel prices, increasing the key policy rate to 22%. A market-based currency exchange rate, and arrangement of foreign financing.

It gives chance to Pakistan to raise new taxation over 385bn rupee ($1.34bn) in through a supplementary budget for the 2022-23 fiscal year and the revised budget for 2023-24.

The painful adjustments already fuelled the inflation to 38% year-on-year in May.

Porter said, “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 under-taxed sectors,”. Adding more it also ensured space to strengthen support for the vulnerable through a cash handout program.

He said it will important that the budget will executed as planned. And authorities should control the pressure of unbudgeted spending or tax exemptions in the period ahead.

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