IMF Approved New Loan Program After ‘Written Support’ from PTI

Aside from the two ruling parties, Pakistan Peoples Party (PPP) and Pakistan Muslim League-Nawaz (PML-N), Pakistan Tehreek-e-Insaf (PTI) communicated their ‘written support’ to the International Monetary Fund (IMF) for the new $3 billion Standby Arrangement (SBA) program.

“In recent days, IMF staff has met with representatives of Pakistan’s major political parties and explained the objectives and key policies of the proposed SBA,” stated the IMF ‘Country Report, Request for a Stand-By Arrangement’, which was released on Tuesday.

All these parties — PTI, PPP, and PML-N — expressed written support for the SBA’s key objectives and policies ahead of the approaching national elections. They also recognized the role that the SBA will play in preserving macroeconomic stability by anchoring policies and supporting external financing over the coming months.

The lender noted that economic activity in Pakistan has slowed considerably, affected by the ongoing crisis, the devastating 2022 floods, the significant tightening of external financing conditions, and the adverse effects of domestic policies.

The confluence of severe exogenous shocks, and political crises at home have exacerbated Pakistan’s economic and financial crises, making it the most challenging period in its history, the lender remarked.

“International reserves have declined considerably and stood at about ¾ month of imports (US$4.2 billion), inflation is at a record high (38 percent in May 2023), and fiscal pressures stemming from the floods and policy slippages have increased, further putting debt sustainability at risk,” it said.

Meanwhile, social discontent has risen over the deteriorating economic conditions and eroded living standards, and political tensions escalated significantly in May, with political and institutional fissures coming to the fore.

Now, authorities believe that the new program can play a crucial role in anchoring policies ahead of the national elections due in the Fall and until a new government is formed. The new program will build on Pakistan’s recent EFF-supported program and help address its balance of payment needs by supporting the needed adjustment, bolstering confidence, and catalyzing multilateral and bilateral financing.

Notwithstanding the increasing polarization and tensions between the main political parties, the IMF believes there is a broad recognition that Pakistan needs to remain engaged with the Fund and other international partners and that strong policies should be sustained even after the SBA expires in April 2024.