Pakistan and IMF Reach Agreement on a $6 Billion Bailout Package

Pakistan and International Monetary Fund (IMF) have finally reached an agreement for a bailout package of $6 billion.

According to Prime Minister’s Advisor on Finance, Hafeez Sheikh, the $6 billion package will be given over a period of three years.

He said that Pakistan would get $6 billion assistance in three years, while an additional amount of two to three billion dollars is likely to come from World Bank and Asian Development Bank on a lower interest rate.

Dr. Abdul Hafeez Shaikh said that the IMF programme would be implemented after its formal approval by the Fund’s board. The agreement would improve the debt situation and send a positive signal to the world to attract foreign investment, he added.

The advisor said the IMF programme would provide an opportunity to bring structural changes to handle the issues of loss-making state-owned enterprises and exports and will help enhance revenue generation.

The subsidies will need to be withdrawn from the rich segments of the society, he said, adding that the government was determined to provide relief to the vulnerable segments. The poor would not be burdened with an increase in electricity tariff.

The IMF has also announced that it has reached a ‘staff level’ agreement, but the agreement is subject to IMF management’s approval and approval by the Executive Board.

According to the statement issued by the IMF,

The Pakistani authorities and the IMF team have reached a staff-level agreement on economic policies that could be supported by a 39-month Extended Fund Arrangement (EFF) for about US$6 billion. This agreement is subject to IMF management approval and to approval by the Executive Board, subject to the timely implementation of prior actions and confirmation of international partners’ financial commitments.

 

Pakistan is facing a challenging economic environment, with lackluster growth, elevated inflation, high indebtedness, and a weak external position. This reflects the legacy of uneven and procyclical economic policies in recent years aiming to boost growth, but at the expense of rising vulnerabilities and lingering structural and institutional weaknesses.

“The programme aims to support the authorities’ strategy for stronger and more balanced growth by reducing domestic and external imbalances, improving the business environment, strengthening institutions, increasing transparency, and protecting social spending,” said the advisor to the PM.

The authorities, he said, recognize the need to address those challenges, as well as tackling the large informality in the economy, the low spending in human capital, and poverty.

In that regard, the government had already initiated a difficult, but necessary, adjustment to stabilize the economy, including support from the State Bank of Pakistan.

According to the IMF,

The State Bank of Pakistan will focus on reducing inflation, which disproportionately affects the poor, and safeguarding financial stability. A market-determined exchange rate will help the functioning of the financial sector and contribute to a better resource allocation in the economy. The authorities are committed to strengthening the State Bank of Pakistan’s operational independence and mandate.

The IMF statement further added that the Extended Fund Facility aims to support authorities’ ambitious macroeconomic and structural reform agenda during the next three years. This includes improving public finances and reducing public debt through robust tax policy and administrative reforms to strengthen revenue mobilization and ensure a more equal and transparent distribution of the tax burden.

At the same time, a comprehensive plan for cost-recovery in the energy sectors and state-owned enterprises will help eliminate or reduce the quasi-fiscal deficit that drains the government’s low resources.