The International Monetary Fund (IMF) on Wednesday announced a staff-level agreement with Pakistan on completing the first review of the $3 billion bailout package after Islamabad assured it to refrain from intervene in the foreign exchange market and continue on the path of budgetary consolidation. .
In a statement issued after the end of the IMF’s visit to Pakistan, the global lender also called for greater transparency in the management of the Sovereign Fund’s assets and in the operations of the Special Investment Facilitation Council (SIFC).
Pakistan would also be required to make cabinet members’ asset declarations public and a task force would conduct a comprehensive review of the country’s anti-corruption framework.
“The IMF team has reached a Staff Level Agreement (SLA) with the Pakistani authorities on the first review of their stabilization program supported by the IMF’s $3 billion,” said Nathan Porter, IMF mission chief. IMF in Pakistan after negotiations end.
The agreement is subject to approval by the IMF Executive Board. Once approved, about $700 million, or SDR 528 million, will be available, bringing total disbursements under the program to nearly $1.9 billion, he added.
The talks proceeded mostly smoothly over the course of two-week engagements. The IMF did not accept the Ministry of Finance’s creative budget accounting, which would now result in a revision of the reported budget figures.
Contrary to the timely assistance of the IMF, Pakistan’s Finance Ministry continued to be afraid of the media. He deployed Border Patrol and police to Q Block to keep the media away, even though the discussions took place in a five-star hotel. It was the first time that there was a complete break between the Ministry of Finance and the media.
Pakistan also assured the IMF that it would take additional fiscal measures in case tax collection by the Federal Board of Revenue fails to meet the monthly targets. The country would maintain its monetary policy in line with inflationary trends.
The IMF emphasized continued fiscal consolidation to reduce public debt, while protecting development needs – in a statement that suggests the IMF did not like the Finance Ministry’s policy aimed at reducing development expenditure with the aim of achieving the primary budget surplus objective.
The IMF said Pakistan is “committed to achieving a primary surplus of at least 0.4% of GDP in FY24, supported by federal and provincial government spending restraint and sustained revenue improvement , if necessary, by contingent measures.” This shows that the annual target remains unchanged during the revision negotiations.
Pakistan would also be required to “finalize the return to a market-determined exchange rate,” according to Porter.
Read also : Rupee faces continued strain amid IMF talks
“While inflows following increased enforcement of regulations and laws have helped normalize import and foreign exchange payments and replenish reserves, authorities recognize that the rupee must remain market determined to mitigate sustainably external pressures and rebuild reserves”, according to the IMF.
To support this, they plan to strengthen the transparency and efficiency of the foreign exchange market and refrain from any administrative actions aimed at influencing the rupee, the statement added.
The IMF has not approved Pakistan’s policy on managing the rupee, which started depreciating again in the middle of last month and closed above Rs288 to the dollar on Wednesday.
Pakistan will also pursue state-owned enterprise and governance reforms to attract investment and support job creation, while continuing to strengthen social assistance, the IMF said.
Resolute execution of the FY24 budget, continued adjustment in energy prices and resumption of flows into the foreign exchange (FX) market have eased fiscal and external pressures, the IMF said.
The IMF said inflation is expected to decline over the coming months amid easing supply constraints and modest demand.
However, Pakistan remains exposed to significant external risks, including intensifying geopolitical tensions, resurgent commodity prices and further tightening of global financial conditions. Efforts to build resilience must continue, he adds.
Pakistan is strengthening its capabilities to broaden the tax base and increase revenue mobilization and is committed to improving the quality of investment and public spending. Pakistan has assured the IMF that it will increase the tax base to 6.5 million tax filers by the end of June next year and achieve the tax target of Rs 9,415 billion despite challenges.
Read also : “Pakistan set to obtain second tranche from IMF”
The IMF said Pakistan’s combined circular debt in the power and gas sectors exceeded 4% of GDP and immediate action was essential. He recognized the implementation of electricity tariff adjustments pending since July 2023 and the increase in gas prices after a long period, starting from November 1, 2023.
The authorities are also working to combat cost pressures, including by promoting private sector participation in DISCOs, institutionalizing recovery and anti-theft actions, improving PPA conditions and reducing incentives. to captive energy, adds the press release.
The improved terms of power purchase agreements (PPAs) means the IMF has once again highlighted the pending issue of renegotiation of CPEC power deals, the sources said.
The IMF also said it was necessary to adopt a proactive monetary policy to bring inflation back towards its target. With sufficiently tight monetary policy, inflation should fall steadily and the authorities are prepared to respond decisively if short-term price pressures re-emerge, notably due to second-round effects on core inflation or ‘a further depreciation of the exchange rate, adds the report.
The IMF said Pakistan must also remain vigilant to preserve the strength of the banking system. Priorities include addressing undercapitalization of financial institutions, ensuring foreign exchange risks within regulatory limits, and aligning bank resolution and crisis management frameworks with best practices.
Nathan Porter said high standards of governance and transparency will apply to the management of assets belonging to the newly established Sovereign Wealth Fund (SWF) and the operations of the SIFC.
The IMF had received a briefing from the secretary of the SIFC supreme committee and raised concerns about the lack of transparency and accountability of its decisions. The IMF also questioned the need for the SIFC in the presence of other departments tasked with performing similar functions.
Nathan said that to further strengthen governance, Pakistan will ensure public access to the asset declarations of Cabinet members and that a working group, with the participation of independent experts, will conduct a comprehensive review of the anti- corruption.
The head of mission further said that Pakistan has accelerated its engagement with its official multilateral and bilateral partners. “Timely disbursement of committed external support remains essential to support the authorities’ policy and reform efforts,” it adds.
Pakistan will also continue timely disbursements for social protection under the BISP budget allocation, which are approximately one-third higher than in FY2023. This will expand the Kafaalat cash transfer program (UCT) to 9.3 million families this financial year. year, with the allocation adjusted annually for inflation, Porter said.