The International Monetary Fund (IMF) has announced that it has a reached staff-level agreement with Pakistan for an extended fund facility (EFF) of around $7 billion.
The IMF issued a statement in the wee hours of Saturday according to Pakistan time, praising the country for adhering to the terms set out in the Stand-by Arrangement (SBA) that Shehbaz Sharif led PDM government signed with the Fund in 2023.
Faced with chronic mismanagement, Pakistan’s economy has found itself on the brink, challenged by the Covid-19 pandemic, the effects of the war in Ukraine and supply difficulties that fuelled inflation, as well as record flooding that affected a third of the country in 2022.
With its foreign currency reserves dwindling, Pakistan found itself in a debt crisis and was forced to turn to the IMF, obtaining its first emergency loan in the summer of 2023.
The latest bailout, coming to Pakistan in the form of loans, follows a commitment by the government to implement reforms, including a major effort to broaden the country’s tax base.
According to the statement, Pakistan will be receiving the money in the next three years if it lives up to the promises the current government has made with the Fund. These include measures to tax everyone in the county and privatise the state’s own organisations.
Additionally, Pakistan will be required to secure more loans from its friends, namely China, Saudi Arabia, and the UAE.
“Building on the economic stability achieved under the 2023 Stand-by Arrangement (SBA), IMF staff and the Pakistani authorities have reached a staff-level agreement on a 37-month Extended Fund Facility Arrangement (EFF) of about US$7 billion. This agreement is subject to approval by the IMF’s Executive Board” the statement from the Fund read.
In a nation of over 240 million people and where most jobs are in the informal sector, only 5.2 million filed income tax returns in 2022.
During the 2024-25 fiscal year which starts July 1, the government aims to raise nearly $46 billion in taxes, a 40 per cent increase from the previous year.
As part of the push, Pakistan’s tax authority earlier this month blocked 210,000 SIM cards of users who have not filed tax returns in a bid to widen the revenue bracket.
The IMF said the new program would help authorities improve macroeconomic stability and create conditions for stronger, more inclusive, and resilient growth.
“This includes steps to strengthen fiscal and monetary policy and reforms to broaden the tax base, improve State Owned Enterprises’ (SOE) management, strengthen competition, secure a level playing field for investment, enhance human capital, and scale up social protection through increased generosity and coverage in the Benazir Income Support Program (BISP),” the statement added.
“Continued strong financial support from Pakistan’s development and bilateral partners will be critical for the program to achieve its objectives,” it said.
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In recent months, the current account balance has recovered slightly, high inflation is just starting to come down, but Pakistan’s foreign debt remains very high at $242 billion.
Servicing it will still swallow up half of the government’s income in 2024, according to the IMF.
The Fund also anticipates two per cent growth this year, with inflation still expected to reach nearly 25 per cent year-on-year, before gradually coming down in 2025 and 2026.
(With input from AFP)
