By Staff Reporter
KARACHI: The International Monetary Fund (IMF) and Pakistan agreed on Friday to a $3-billion, nine-month loan deal to help the country cope with external shocks and policy missteps that have stalled economic growth and fuelled inflation.
The Stand-By Arrangement (SBA), which expires in March 2024, builds on a previous $6.5 billion Extended Fund Facility (EFF) that ends today.
The much-awaited staff-level agreement for a new but crucial bailout could help stabilize the country’s flailing economy and lift it out of an impending debt default.
“I am pleased to announce that the IMF team has reached a staff-level agreement with the Pakistani authorities on a nine-month Stand-By Arrangement (SBA) in the amount of SDR 2,250 million (about $3 billion),” Porter said.
“The new SBA would provide a policy anchor and a framework for financial support from multilateral and bilateral partners in the period ahead.”
Pakistan has faced several challenges since completing the seventh and eighth reviews under the EFF in August 2022, including devastating floods, a spike in global commodity prices amid Russia’s war in Ukraine, and foreign exchange market constraints that have led to import shortages and reserve losses.
The power sector also remains under stress, with mounting arrears and frequent blackouts.
Porter said the authorities had taken measures to address these issues, such as tightening monetary policy, allowing greater exchange rate flexibility, and increasing electricity tariffs.
“Despite the authorities’ efforts to reduce imports and the trade deficit, reserves have declined to very low levels. Liquidity conditions in the power sector also remain acute,” he added.
“Given these challenges, the new arrangement would provide a policy anchor and a framework for financial support from multilateral and bilateral partners in the period ahead.”
However, Porter warned that more fiscal discipline was needed to avoid unbudgeted spending or tax exemptions that could derail the budget targets.
“It will be important that the budget is executed as planned, and the authorities resist pressures for unbudgeted spending or tax exemptions in the period ahead,” he said.
Porter said the central bank had removed guidance on import prioritization and was committed to letting the market determine the exchange rate.
“Going forward, the central bank should remain proactive to reduce inflation, which particularly affects the most vulnerable, and maintain a foreign exchange framework free of restrictions on payments and transfers for current international transactions and multiple currency practices,” he said.
He also said the authorities were seeking new financing and debt rollovers from multilateral institutions and bilateral partners to support their policy efforts and replenish reserves.
The IMF said the program also included ongoing efforts to improve the energy sector, state-owned enterprises, and public investment management. It said full and timely implementation of the program was critical for its success.
Copyright © 2021 Independent Pakistan | All rights reserved
