Agreement Details:
A press release from the IMF on Mar 20th, 2024, confirmed that the IMF staff and Pakistani authorities had reached a staff-level agreement on the second and final review of the IMF-SBA program.
This staff-level agreement reached between Pakistan and the IMF is now subject to approval by the IMF Executive Board.
Moreover, this signing of the staff agreement paves the way for the disbursement of the second tranche, amounting to USD 1.1bn (SDR 828mn).
To recall, Pakistan had achieved a significant breakthrough by signing a nine-month Stand-By Arrangement (SBA) deal with the IMF worth USD 3bn (SDR 2.25bn) in Jun’23. This program had come at a crucial juncture as the previous EFF program concluded incomplete.
Timeline for Approval:
The 2nd Review mission occurred immediately after the formation of the new cabinet.
Thus, the review is anticipated to be considered by the IMF’s Board in late Apr’24.
Transition to Recovery Phase:
The agreement highlights the new government’s intention to move Pakistan from stabilization to a strong and sustainable recovery.
Emphasis is placed on continuing policy and reform efforts to facilitate this transition.
Recognition of Program Implementation:
The agreement recognizes the commendable program implementation by the State Bank of Pakistan and the caretaker government in recent months.
The efforts of the interim government are acknowledged alongside the new government’s commitment to ongoing policy and reform efforts.
Economic and Financial Improvement:
IMF acknowledged that Pakistan’s economic and financial position improved since the first review, driven by prudent policy management and inflows from multilateral and bilateral partners.
Growth and confidence are on the rise, though growth is expected to be modest this year, and inflation remains above target.
Government Commitment to Policy Efforts:
The new government is committed to continuing policy efforts initiated under the current SBA to establish economic and financial stability for the remainder of the year.
Key priorities include:
Achieving the FY24 general government primary balance target of 0.4% of GDP.
Broadening the tax base to enhance revenue generation.
Continuing with timely implementation of power and gas tariff adjustments to maintain average tariffs in line with cost recovery.
Protecting vulnerable segments through existing progressive tariff structures to prevent net circular debt accumulation in FY24.
Monetary Policy and Exchange Rate Management:
The SBP remains committed to maintaining prudent monetary policy to lower inflation and ensure exchange rate flexibility.
Efforts are focused on transparent operations in the foreign exchange market.
Courtesy- AHL Research