IMF: Pakistan clinches a $ 7 billion deal to keep the nose above surging waters
Virendra Pandit
New Delhi: Pakistan and the International Monetary Fund (IMF) have reached an agreement for a USD 7 billion aid package spread over 37 months to help the nearly bankrupt and terror-infested unstable country deal with its chronic economic woes, the media reported on Saturday.
“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 USD 7 billion,” the global lender said in an overnight statement, confirming the much-awaited deal subject to the approval by the IMF’s Executive Board.
The Washington-based lender said the new program aims to support the officials’ efforts to cement macroeconomic stability and create conditions for stronger, more inclusive, and resilient growth in the cash-strapped country.
“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 Programme (BISP),” the reports said.
The IMF also stated that continued strong financial support from Pakistan’s development and bilateral partners would be critical for the program to achieve its objectives.
An IMF team led by Nathan Porter, IMF’s Mission Chief to Pakistan, held discussions with the Pakistani side during the May 13-23, 2024, staff visit to Islamabad.
According to the statement, the new program aims to capitalize on the hard-won macroeconomic stability achieved over the past year by furthering efforts to strengthen public finances, reduce inflation, rebuild external buffers, and remove economic distortions to spur private sector-led growth.
Under the fresh deal, Pakistan has agreed to increase tax revenues through measures of 1 and a half percent of GDP in FY25 and three percent of GDP over the program.
“Revenue collections will be supported by simpler and fairer direct and indirect taxation, including by bringing net income from the retail, export, and agriculture sectors properly into the tax system,” it said.
The statement said the federal and provincial governments agreed to re-balance spending activities, and at the same time, the provinces will take steps to increase their tax-collection efforts, including in sales tax on services and agricultural income tax.
The latest agreement is Pakistan’s latest turn to the global lender for help in propping up its economy and dealing with its debts through big bailouts.
Earlier this year, the IMF approved the immediate release of the final USD 1.1 billion tranche of a USD 3 billion bailout to Pakistan.
Finance Minister Muhammad Aurangzeb said the government planned to seek a long-term loan to help stabilize the economy after the end of that bailout package.
The deal was announced just two weeks after Pakistan approved a tax-laden budget for the 2024-25 fiscal year with the approval of the IMF.
The new budget of about USD 68 billion — up from USD 50 billion in the last fiscal year — was aimed at qualifying for a long-term IMF loan of USD 6 billion to USD 8 billion to help stabilize the economy.
Pakistan in 2023 nearly defaulted on the payment of foreign debts to the tune of over USD 130 billion, which includes China’s USD 25 billion.
