The International Monetary Fund (IMF) staff and Pakistan have reached a staff-level agreement on the first review under Pakistan’s Stand-By Arrangement (SBA), the IMF said in a statement on Wednesday.

A statement issued by the Fund outlined the steps that Pakistan has taken or will be taking to secure the next tranche of the $3 billion loan.

Pakistan has made the following promises.

• The country will leave the exchange rate on the market forces. So, the government will not take “administrative actions” to control the value of the US dollar against the Pakistani rupee
• Pakistan has already increased electricity and gas prices in July and November, respectively. There will be no relief for the poor.
• The Benazir Income Support cash handouts will be linked to parents sending their children to schools and taking care of their health.
• The government will pursue the privatization of state-owned enterprises.
• The biggest promise made is about improvement in governance and transparency. The statement said high governance and transparency standards will apply the operations of the SIFC. All the ministers will declare their assets.

There was no immediate comment on the statement from the ministry of finance.

“The IMF team has reached a staff-level agreement (SLA) with the Pakistani authorities on the first review of their stabilisation programme supported by the IMF’s US$3 billion (SDR2,250 million) SBA (Press Release No. 23/261),” the IMF said.

The agreement is subject to approval of the IMF’s Executive Board. Upon approval around US$700 million (SDR 528 million) will become available bringing total disbursements under the programme to almost US$1.9 billion, it added

An IMF team, led by Nathan Porter, visited Islamabad from November 2-15, 2023, to hold discussions on the first review of Pakistan’s economic programme supported by SBA.

“Anchored by the stabilisation policies under the SBA, a nascent recovery is underway, buoyed by international partners’ support and signs of improved confidence. The steadfast execution of the FY24 budget, continued adjustment of energy prices, and renewed flows into the foreign exchange (FX) market have lessened fiscal and external pressures,” the IMF said.

The global lending institution expected inflation to decline over the coming months amid receding supply constraints and modest demand.

However, Pakistan remains susceptible to significant external risks, including the intensification of geopolitical tensions, resurgent commodity prices, and the further tightening in global financial conditions. Efforts to build resilience need to continue, it stated.

“In this regard, strengthening macroeconomic sustainability and laying the conditions for balanced growth are key priorities under the SBA,” the IMF added.

The IMF said that the Pakistani authorities’ policy priorities include continued fiscal consolidation to reduce public debt while protecting development needs.

“The authorities are determined to achieve a primary surplus of at least 0.4% of GDP in FY24, underpinned by federal and provincial government spending restraint and improved revenue performance supported, if necessary, by contingent measures,” it added.

According to the Fund, Pakistan is building capacity to expand the tax base and raise revenue mobilisation and is committed to improving the quality of public investment and spending.

Strengthening the social safety net to better protect the vulnerable was also considered Pakistan’s priority.

Pakistan will continue the timely disbursements for social protection under BISP’s budget allocation—which are about a third higher than in FY23, the IMF said.

“This will allow for the expansion of the Unconditional Cash Transfers (UCT) Kafaalat programme to 9.3 million families this fiscal year, with an annual inflation adjustment of the stipend. Looking forward, the authorities are seeking to improve the UCT Kafaalat generosity level and to increase enrollment into the Conditional Cash Transfers programs supporting children’s education and health,” it added.

As per the IMF, Pakistan has also prioritised bringing in further reforms to reduce costs in the energy sector and restore its viability.

“With the combined circular debt across power and gas sectors exceeding 4% of the GDP, immediate action was critical. While protecting vulnerable consumers, the authorities implemented power tariff adjustments that were pending since July 2023 and increased gas prices after a long time, effective November 1, 2023,” it said.

The Fund stated that the substantial increases were necessary to avoid further arrears that threatened the viability of these sectors and the provision of critical energy supplies.

The authorities are also moving to tackle cost-side pressures, including bringing private sector participation to distribution companies, institutionalising recovery and anti-theft actions, improving PPA terms, and reducing the incentives for captive power, it added.

“Pakistan recognises that the rupee must remain market-determined to sustainably alleviate external pressures and rebuild reserves. To support this, they plan to strengthen the transparency and efficiency of the FX market and to refrain from administrative actions to influence the rupee,” the IMF remarked.

On the key policy rate, the IMF said that inflation should steadily decline with appropriately tight monetary policy.

“The authorities stand ready to respond resolutely if near-term price pressures reemerge, including due to second-round effects on core inflation or renewed exchange rate depreciation,” it added.

In the financial sector, the IMF said that continued vigilance is warranted to safeguard the soundness of the banking system.

Pakistan’s priorities include addressing undercapitalised financial institutions, ensuring foreign exchange exposures within regulatory limits, and aligning bank resolution and crisis management frameworks with best practice, it added.

“Following passage of the State-Owned Enterprises (SOE) law, the authorities are moving forward with their SOE policy and implementation of their triage plan, including the privatisation of select SOEs,” the IMF said.

According to the Fund, the authorities will ensure public access to asset declarations from Cabinet members to further strengthen governance and a task force, with participation from independent experts, will complete a comprehensive review of the anticorruption framework.

High governance and transparency standards will apply to the management of assets under the ownership of the newly created Sovereign Wealth Fund (SWF) and the operations of the SIFC.

Pakistan has accelerated the engagement with multilateral and official bilateral partners, the IMF said, adding: “Timely disbursement of committed external support remains critical to support the authorities’ policy and reform efforts.”