By Staff Reporter
ISLAMABAD: Pakistan and the International Monetary Fund (IMF) on Friday reached a staff-level agreement for a new $7 billion loan program, providing much-needed relief for the cash-strapped government of Prime Minister Shehbaz Sharif.
The agreement, which needs approval by the IMF’s executive board, follows months of negotiations and is seen as crucial for Pakistan’s teetering economy. The deal builds upon the economic progress achieved under a previous short-term agreement.
“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…of about US$7 billion,” the IMF said in its statement.
The program aims to cement macroeconomic stability and create conditions for stronger, more inclusive and resilient growth, the IMF said. Pakistan, grappling with chronic boom-and-bust cycles, is the IMF’s fifth-largest borrower.
Nathan Proter, the Fund’s mission chief to Pakistan, said 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”.
The authorities plan to increase tax revenues by 1.5 percent of GDP in FY25 and 3 percent of GDP over the program, through simpler and fairer direct and indirect taxation. The increase in tax revenue will be achieved through “simpler and fairer direct and indirect taxation, including by bringing net income from the retail, export, and agriculture sectors properly into the tax system”.
Federal and provincial governments have agreed to rebalance spending activities in line with the 18th Constitution Amendment by signing a ‘National Fiscal Pact’.
The government will also improve the power sector’s viability, minimize losses, and undertake targeted subsidy reforms. The authorities will improve SOE operations and management, prioritize privatization, and phase out incentives to Special Economic Zones.
“The authorities have also committed to advance anti-corruption as well as governance and transparency reforms, and gradually liberalise trade policy.”
Prime Minister Sharif hailed the agreement as a crucial step but emphasized the need for a “long and difficult journey” to wean Pakistan off IMF reliance. “If we want to get rid of loans, we need to consider this IMF program as the final one,” he said.
“We need to pursue a long and difficult journey to augment our macroeconomic numbers. We will have to make sacrifices.”
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