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Thursday, June 20, 2024  
13 Dhul-Hijjah 1445  

IMF says staff-level agreement reached with Pakistan to unlock $1.1 billion

Statement comes hours after talks were concluded,
File photo
File photo

Hours after talks between Pakistan and International Monetary Fund concluded, the Fund officially said a staff-level agreement has been reached regarding the stand-by agreement. The agreement will lead to $1.1 billion being released.

“The IMF team has reached a staff-level agreement with the Pakistani authorities on the second and final review of Pakistan’s stabilization program supported by the IMF’s US$3 billion,” Nathan Porter, who led the IMF delegation, said in a statement.

The statement added that the agreement would be subject to approval by the IMF’s executive board after which the SBA’s final tranche worth $1.1 billion will be released.

IMF also said that Pakistan’s economic situation has improved over the course of the reviews, particularly with help from firendly countries.

“Pakistan’s economic and financial position has improved in the months since the first review, with growth and confidence continuing to recover on the back of prudent policy management and the resumption of inflows from multilateral and bilateral partners,” IMF said.

The Fund’s statement noted that economic growth would remain ‘modest’ this year and inflation would also remain above target.

IMF also confirmed that Pakistan has expressed interest in securing a medium term fund facility.

“The authorities also expressed interest in a successor medium-term Fund-supported program with the aim of permanently resolving Pakistan’s fiscal and external sustainability weaknesses, strengthening its economic recovery, and laying the foundations for strong, sustainable, and inclusive growth,” IMF said.

IMF added that when talks about a longer deal do take place, they are likely to centered around strengthening public finances, restoring the energy sector’s viability, returning inflation to target, a more transparent flexible FX market and promoting private-led activity

According to a report in Business Recorder, the Fund has recommended raising excise duties on luxury goods.

IMF has recommended that cigarettes should receive the same excise duties regardless of whether they are imported or locally manufactured. The Fund has also recommended extending the same rule to electronic cigarettes.

Sources also told BR that the list of items that are considered excisable is too long and it will have to be shortened in the long term by removing items that do not generate significant revenue.

Previous reports have mentioned IMF demands on higher taxes for real esate and retail sector as well.

New agreement

The IMF said Pakistan had expressed interest in another bailout during the review talks, with discussions on a medium-term programme expected to start in the next few months.

Prime Minister Shehbaz Sharif told his cabinet on Wednesday that Pakistan needed a new IMF loan, adding that increasing the tax base was mandatory for securing this deal.

“The IMF agreement will improve the country’s economy,” Finance Minister Muhammad Aurangzeb said in the cabinet briefing, according to a statement from Sharif’s office.

The government has not officially stated the size of the additional funding it is seeking. Bloomberg reported in February that Pakistan planned to ask for a loan of at least $6 billion.

Ahead of the stand-by arrangement, Pakistan had to meet IMF conditions including revising its budget, and raising interest rates as well as generating revenues through more taxes and hiking electricity and gas prices.

It had also recommended reforms in loss-making state-owned enterprises, including the national flag carrier, Pakistan International Airline (PIA), which Islamabad has already put up for sale.

The cabinet also approved setting up a holding company to park the airline’s debt and liabilities, the statement said, terming it an important milestone toward its privatisation.

The IMF said the government was committed to these measures, and called for broadening the tax base as well as adjusting power and gas tariffs.

Economist Sakib Sheerani said the new long-term agreement would be focusing more on deeper structural conditionality such as the public sector wage and pension bill.

(With input from Reuters)

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International Monetary Fund

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Muhammad Aurangzeb