IMF approves lending $3 billion to stabilise Pakistan’s economy

Executive Board’s approval allows for an immediate disbursement of US$1.2 billion n Remaining amount will be phased over program's duration, subject to two quarterly reviews n IMF board calls Pakistan’s budget for FY2024 a welcome step towards fiscal stabilisation n Admits Pakistan’s economy was hit hard by significant shocks last year n Finance Minister also confirms UAE deposited $1 billion into SBP account.

 

WASHINGTON, DC/ISLAMABAD   -  Federal Minister for Finance and Revenue Senator Ishaq Dar on Wednesday announced that the International Monetary Fund (IMF) Executive Board had ap­proved the Stand-by Agreement (SBA) for US$3 billion for Pakistan.

“Today, the Executive Board of the International Monetary Fund (IMF) approved a 9-month Stand-By Arrangement (SBA) for Paki­stan for an amount of SDR2,250 million (about $3 billion, or 111 percent of quota) to support the authorities’ economic stabiliza­tion program,” says a press re­lease issued by the Fund after the board meeting.

It further said the arrangement comes at a challenging economic juncture for Pakistan. A difficult external environment, devastat­ing floods, and policy missteps have led to large fiscal and exter­nal deficits, rising inflation, and eroded reserve buffers in FY23. 

Pakistan’s new SBA-supported program will provide a policy an­chor for addressing domestic and external imbalances and a frame­work for financial support from multilateral and bilateral part­ners. The program will focus on (1) implementation of the FY24 budget to facilitate Pa­kistan’s needed fiscal adjust­ment and ensure debt sus­tainability, while protecting critical social spending; (2) a return to a market-determined exchange rate and proper FX market functioning to absorb external shocks and eliminate FX shortages; (3) an appro­priately tight monetary policy aimed at disinflation; and (4) further progress on structural reforms, particularly with re­gard to energy sector viability, SOE governance, and climate resilience.

The Executive Board’s approv­al allows for an immediate dis­bursement of SDR894 million (or about US$1.2 billion). The re­maining amount will be phased over the program’s duration, subject to two quarterly reviews.

Following the Executive Board discussion, Kristalina Georgieva, Managing Director and Chair, made the following statement: 

“Pakistan’s economy was hit hard by significant shocks last year, notably the spill­overs from the severe impacts of floods, the large volatility in commodity prices, and the tightening of external and do­mestic financing conditions. These factors together with uneven policy implementa­tion under the EFF combined to halt the post-pandemic re­covery, sharply increase infla­tion, and significantly depleted internal and external buffers. The authorities’ new Stand-By Arrangement, implement­ed faithfully, offers Pakistan an opportunity to regain macro­economic stability and address these imbalances through con­sistent policy implementation.” 

“The authorities’ FY24 bud­get, which targets a modest primary surplus, is a welcome step toward fiscal stabiliza­tion. The anticipated improve­ment in tax revenues is critical to strengthen public financ­es, and to eventually create the fiscal space needed to bol­ster social and development spending. Maintaining disci­pline over non-critical primary expenditure will be essential to support budget execution within the envisaged enve­lope. In parallel, the authori­ties urgently need to strength­en energy sector viability by aligning tariffs with costs, re­forming the sectors cost base, and better-targeting pow­er subsidies. Looking beyond this fiscal year, enhanced ef­forts to expand the tax base and improve public financial management, including in the delivery of quality infrastruc­ture, are needed and increase progressivity and efficiency.” 

“The recent increase in the policy rate by the SBP is ap­propriate given the very high inflationary pressures, which disproportionately impact the most vulnerable. A continued tight, proactive, and data-driv­en monetary policy is warrant­ed going forward. A market-de­termined exchange rate is also critical to absorbing external shocks, reducing external im­balances, and restoring growth, competitiveness, and buffers. Close oversight of the bank­ing system and decisive action to address undercapitalized fi­nancial institutions would sup­port financial stability.” 

“Accelerating structural re­forms to build climate resil­ience, enhance safety nets, strengthen governance, in­cluding of state-owned enter­prises, and improve the busi­ness environment by creating a level-playing-field for invest­ment and trade are necessary for job creation and raising in­clusive growth.” 

The revival of the IMF pro­gramme would provide more than one billion dollars in­flows to Pakistan but it would also pave the way for get­ting funds from other bilater­al and multilateral sources to increase its foreign exchange reserves. Finance Minister Ishaq Dar has claimed that the country’s foreign exchange re­serves would reach to $15 bil­lion by the end of the current month after receiving $5 bil­lion to $6 billion inflows from friendly countries and multi­lateral sources. Pakistan had already received three billion dollars from Saudi Arabia and United Arab Emirates (UAE) in last two days.

The government is expect­ing $1.1 billion from the IMF in next few days. Meanwhile, the government is ecpecting $1 billion from Islamic De­velopment Bank, $450 mil­lion from the World Bank and $250 million from Asian Infrastructure Investment within the ongoing month. All these inflows, if materialized, would improve the country’s foreign exchange reserves and the rupee will likely re­main strong and stable.

‘ONE BILLION DOLLARS FROM UNITED ARAB EMIRATES’

A day after receiving two billion dollars from Saudi Ara­bia, Pakistan on Wednesday has received one billion dol­lars from United Arab Emir­ates (UAE) that would fur­ther increase the country’s foreign exchange reserves. In a televised address, Finance Minister Ishaq Dar has said that Pakistan received $1 bil­lion from the UAE. “We have received $1 billion from the UAE. The UAE has deposit­ed the amount into the State Bank account,” the Finance Minister said. 

Later, in a tweet he said, “State Bank of Pakistan (SBP) has received today a deposit of $1 billion from United Arab Emirates. This inflow has fur­ther increased forex reserves held by SBP and will accord­ingly be reflected in the forex reserves position for the week ending 14July2023”.

On behalf of PM Shehbaz Sharif, Army Chief General Asim Munir and the people of Pakistan, the federal minister extended “heartfelt thanks to the leadership of United Arab Emirates for their great ges­ture and support by placing said deposit of $1 billion with State Bank of Pakistan!”

Prime Minister Shehbaz Shar­if also expressed gratitude say­ing: “Grateful to my dear broth­er, H.H. Mohamed Bin Zayed, President of the UAE, for the deposit of $1 billion with the State Bank of Pakistan. As a time-tested friend & brother­ly country, the UAE has always come forward to support Paki­stan.” The prime minister said Pakistan “deeply acknowledge this kind gesture & consider it critical to our efforts to stabi­lize the economy”.

Earlier on Tuesday, Paki­stan has received much need­ed $2 billion from Saudi Ara­bia. The inflow of dollars from Saudi Arabia and UAE would increase the country’s over­all foreign exchange reserves to $12.67 billion from existing $9.67 billion. 

Finance Minister Ishaq Dar claimed that the country’s for­eign exchange reserves would reach to $15 billion by the end of the current month after re­ceiving $5 billion to $6 billion inflows from friendly coun­tries and multilateral sourc­es. The government is expect­ing $1.1 billion from the IMF in mid of this month. Mean­while, the government is ex­pecting $1 billion from Islam­ic Development Bank, $450 million from the World Bank and $250 million from Asian Infrastructure Investment within the ongoing month. All these inflows, if materialized, would improve the country’s foreign exchange reserves and the rupee will likely re­main strong and stable.

Prime Minister Muhammad Shehbaz Sharif on Wednesday said that the approval of the In­ternational Monetary Fund’s (IMF) Executive Board for a Stand-by Agreement of $3 bil­lion, a little while ago, was a major step forward in the gov­ernment’s efforts to stabilise the economy and achieve mac­roeconomic stability.

On his Twitter handle, the prime minister said that the agreement would bolster Pa­kistan’s economic position to overcome immediate- to me­dium-term economic challeng­es, giving the next government the fiscal space to chart the way forward.

He further said that the mile­stone, which was achieved against the heaviest of odds and against seemingly impos­sible deadline, could not have been possible without excel­lent team effort.

The prime minister com­mended Finance Minister Ish­aq Dar and his team at the Min­istry of Finance for their hard work. He also conveyed his special thanks to IMF Manag­ing Director Kristalina Georgie­va and her team for their sup­port and cooperation.

Referring to the stand-by agreement with the Interna­tional Monetary Fund (IMF), Prime Minister Shehbaz Shar­if said Wednesday that it was all because of the prayers of the people and now the coun­try would resume its journey of development and prosperity.

Addressing the foundation stone laying ceremony of a fly­over here at Shaheen Chowk on Ninth Avenue; he said it was not an easy task as the PML-N and its coalition partners put their politics at stake by taking tough economic decisions to save the country from default, he added. 

Pakistan, he said, would now stand on its own feet. “We will promote agriculture, informa­tion technology and other sec­tors. Pakistan will not only shed the debt burden but also emerge as a powerful coun­try very soon.” Regarding Sau­di Arabia’s $2 billion deposit with the State Bank of Pakistan, the prime minister gave the en­tire credit to army chief Gen­eral Asim Munir, saying this happened “purely due to his untiring efforts”.