Islamabad/Washington: Pakistan has reached a significant agreement with the International Monetary Fund (IMF) on a $7 billion aid package aimed at tackling the country’s ongoing economic difficulties.
“Building on the economic stability achieved under the 2023 Stand-by Arrangement (SBA), IMF staff and the Pakistani authorities have reached a staff-level agreement on a 37-month Extended Fund Facility Arrangement (EFF) of about $7 billion,” the IMF confirmed in a statement, pending approval by the IMF’s Executive Board.
The Washington-based IMF outlined that the new program is designed to bolster Pakistan’s efforts in solidifying macroeconomic stability and promoting stronger, inclusive, and resilient growth. Key components include improvements to fiscal and monetary policies, expansion of the tax base, enhancement of State-Owned Enterprises (SOEs) management, promotion of competition, facilitation of investment, advancement of human capital, and expansion of social protection through the Benazir Income Support Programme (BISP).
The IMF stressed the critical importance of sustained financial backing from Pakistan’s development partners and bilateral allies for the success of the program. Nathan Porter, IMF’s Mission Chief to Pakistan, led discussions with Pakistani officials during a staff visit to Islamabad from May 13-23, 2024.
According to the IMF, the program builds upon the macroeconomic stability achieved in the past year and aims to further strengthen public finances, reduce inflation, bolster external reserves, and remove economic distortions to stimulate growth led by the private sector.
Under the terms of the agreement, Pakistan has committed to increasing tax revenues by 1.5% of GDP in FY25 and by 3% of GDP throughout the program’s duration. This will be achieved through simplified and equitable direct and indirect taxation, including the inclusion of net income from retail, export, and agriculture sectors into the tax system.
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The statement also noted that both federal and provincial governments have agreed to realign their expenditure priorities, with provinces enhancing efforts in tax collection, particularly in sales tax on services and agricultural income tax.
This agreement represents Pakistan’s latest effort to secure IMF assistance to manage its economic challenges and debt obligations through substantial financial aid. Earlier this year, the IMF greenlit the disbursement of the final $1.1 billion tranche from a $3 billion bailout to Pakistan.
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Finance Minister Muhammad Aurangzeb indicated the government’s intention to seek a long-term loan to stabilize the economy following the conclusion of the current bailout package.
The announcement follows Pakistan’s approval of a tax-focused budget for the fiscal year 2024-25, aligning with IMF stipulations. Analysts observe that the budget, totaling approximately $68 billion compared to $50 billion in the previous year, aims to secure a long-term IMF loan ranging from $6 billion to $8 billion to stabilize Pakistan’s economy, which faced near-default on foreign debt payments in 2023.
