In its statement announcing the $3 billion agreement with Pakistan, the International Monetary Fund (IMF) has listed the steps that Pakistan has already taken and that it must take to secure the disbursements.

The statement was issued by the mission chief for Pakistan, Nathan Porter, who cited the 2022 floods and international commodity price hike that followed the Russian invasion of Ukraine as some of the economic shocks Pakistan experienced.

These shocks put constraints on the performance of financial markets, the IMF official noted.

He also took note of the efforts by Pakistani authorities to reduce imports and trade deficit, but said that Pakistan was facing the problem of dwindling forex reserves and rising circular debt in power sector.

“Since the completion of the combined seventh and eight reviews under the 2019 Extended Fund Facility (EFF) in August 2022, the economy has faced several external shocks such as the catastrophic floods in 2022 that impacted the lives of millions of Pakistanis and an international commodity price spike in the wake of Russia’s war in Ukraine. As a result of these shocks as well as some policy missteps—including shortages from constraints on the functioning of the FX market—economic growth has stalled. Inflation, including for essential items, is very high. Despite the authorities’ efforts to reduce imports and the trade deficit, reserves have declined to very low levels. Liquidity conditions in the power sector also remain acute, with further buildup of arrears (circular debt) and frequent loadshedding.”

What Pakistan needs to do

Nathan Porter said the new agreement between Pakistan and the IMF provides “a policy anchor and a framework for financial support from multilateral and bilateral partners in the period ahead.”“

“The authorities have already taken a series of important actions ahead of the new program,” he said and listed the measures that Pakistan has already implemented and underscored the steps it still needs to take.

The following text has been reproduced from the IMF release with emphasis added to what is still demanded by the Fund.

• “Parliament has approved FY24 budget in line with the goals of supporting fiscal sustainability and mobilizing revenue, which will enable greater social and development spending. The FY24 budget advances a primary surplus of around 0.4 percent of GDP by taking some steps to broaden the tax base and increase tax collection from undertaxed sectors, as well as improving progressivity, while ensuring space to strengthen support for the vulnerable through the BISP program. It will be important that the budget is executed as planned, and the authorities resist pressures for unbudgeted spending or tax exemptions in the period ahead.

• “The SBP has withdrawn the guidance on import prioritization and is committed to ensuring the full market determination of the exchange rate. Going forward, the SBP should remain proactive to reduce inflation, which particularly affects the most vulnerable, and maintain a foreign exchange framework free of restrictions on payments and transfers for current international transactions and multiple currency practices.”

• The IMF has also called for “continued efforts to mobilize financial support from multilateral institutions and bilateral partners.”

• It demanded that Pakistani authorities must live up to their program about the “efforts to strengthen the viability of the energy sector (including through a timely FY24 annual rebasing), improving SOE governance, and strengthening the public investment management framework, including for projects needed to build resilience to climate change.”

“The full and timely implementation of the program will be critical for its success in light of the difficult challenges,” the statement added.