Improving economy leads IMF to strike stafflevel agreement with Pakistan

ISLAMABAD, (NNI): After several days of negotiations, Pakistan and the International Monetary Fund (IMF) finally on Wednesday reached staff-level agreement on the second and final review under Islamabad's Stand-By Arrangement, under which Pakistan will get $1.1 billion tranche.

According to the declaration issued by the IMF, Pakistan would receive the last tranche of $1.1 billion next month after which a standby arrangement worth $3 billion would be over. However, the agreement is linked to the IMF's Executive Board's approval.

The declaration stated that Pakistan's economic situation was improving and the country's economic growth during the ongoing financial year (FY) was expected to remain good.

It was further stated in the declaration that inflation in the country during the ongoing FY would exceed the target set by the government.

The IMF stated that the agreement recognized the strong programme implementation by the State Bank of Pakistan (SBP) and the caretaker government in recent months, as well as the new government's intentions for ongoing policy and reform efforts to move Pakistan from stabilization to a strong and sustainable recovery.

In his comments, IMF Pakistan Mission Chief Nathan Porter said Pakistan's economic and financial position had improved in the months since the first review, with growth and confidence continuing to recover on the back of prudent policy management and the resumption of inflows from multilateral and bilateral partners.

While these discussions are expected to start in the coming months, key objectives are expected to include: Strengthening public finances, including through gradual fiscal consolidation and broadening the tax base (especially in undertaxed sectors) and improving tax administration to improve debt sustainability and create space for higher priority development and social assistance spending to protect the vulnerable; Restoring the energy sector's viability by accelerating cost reducing reforms including through improving electricity transmission and distribution, moving captive power demand to the electricity grid, strengthening distribution company governance and management, and undertaking effective anti-theft efforts; Returning inflation to target, with a deeper and more transparent flexible FX market supporting external rebalancing and the rebuilding of foreign reserves; and Promoting private-led activity through the above mentioned actions as well as the removal of distortionary protection, advancement of SOE reforms to improve the sector's performance, and the scaling-up of investment in human capital, to make growth more resilient and inclusive and enable Pakistan to reach its economic potential.