Pakistan has reached a staff-level agreement with The International Monetary Fund (IMF) to complete the combined seventh and eighth reviews for Pakistan’s Extended Fund Facility (EFF) with an increase in the total loan size to $7 billion.
The agreement is subject to approval by the IMF’s Executive Board, according to a statement issued by the IMF on Thursday.
The IMF statement reads: “Subject to Board approval, about $1,177 million (SDR 894 million) will become available, bringing total disbursements under the program to about $4.2 billion. Additionally, in order to support program implementation and meet the higher financing needs in FY23, as well as catalyze additional financing, the IMF Board will consider an extension of the EFF until end-June 2023 and an augmentation of access by SDR 720 million that will bring the total access under the EFF to about US$7 billion.”
“Pakistan is at a challenging economic juncture. A difficult external environment combined with procyclical domestic policies fueled domestic demand to unsustainable levels. The resultant economic overheating led to large fiscal and external deficits in FY22, contributed to rising inflation, and eroded reserve buffers.”
Combined seventh and eight reviews of Pakistan’s economic program
Nathan Porter led the IMF team which has finalized discussions for the combined seventh and eighth reviews of Pakistan’s economic program supported by an IMF Extended Fund Facility (EFF).
The statement issued by Porter at the end of the discussion stated that to stabilize the economy and bring policy actions in line with the IMF-supported program, while protecting the vulnerable, policy priorities include:
- Steadfast implementation of the FY2023 budget: The budget aims to reduce the government’s large borrowing needs, protect development spending, and create fiscal space for expanding social support schemes. The provincial governments have agreed to support the federal government’s efforts to reach the fiscal targets, and have already signed MoUs in this regard.
- Catch-up in power sector reforms: The authorities have committed to resume power sector reforms including, critically, the timely adjustment of power tariff including for the delayed annual rebasing and quarterly adjustments, to improve the situation in the power sector and limit load shedding.
- Proactive monetary policy to guide inflation to more moderate levels: To enhance monetary policy transmission, the rates of the two major refinancing schemes EFS and LTFF (which have over recent months been raised by 700 bps and 500 bps respectively) will continue to be linked to the policy rate. Greater exchange rate flexibility will help cushion activity and rebuild reserves to more prudent levels.
- Reducing poverty and strengthening social safety: For FY23, the authorities have allocated Rs. 364 billion to BISP (up from Rs 250 billion in FY22) to be able to bring 9 million families into the BISP safety net, and further extend the Sasta Fuel Sasta Diesel, SFSD scheme to additional non-BISP, lower-middle class beneficiaries.
- Strengthen governance: To improve governance and mitigate corruption, the authorities are establishing a robust electronic asset declaration system and plan to undertake a comprehensive review of the anti-corruption institutions (including the National Accountability Bureau) to enhance their effectiveness in investigating and prosecuting corruption cases.