SBP governor says lender’s decision allows an immediate disbursement of about $1.1 billion. Pakistan, IMF staff secured initial agreement on 37-month Extended Fund Facility in July. Two rating agencies upgraded Pakistan in late August.
ISLAMABAD - The International Monetary Fund (IMF) Wednesday approved seven billion dollars for Pakistan under the Extended Fund Facility programme. The decision was made during the IMF Executive Board meeting held in Washington.
The IMF Executive Board on Wednesday approved a programme for the country, according to a statement from the Prime Minister’s Office. The move allows for an immediate disbursement of about $1.1 billion, State Bank of Pakistan Governor Jameel Ahmad told reporters earlier on Wednesday.
The Executive Board of the IMF approved the 37-month Extended Fund Facility totaling $7 billion. It also authorised to immediately release the first loan tranche of nearly $1.1 billion. It is the 25th IMF programme that Pakistan has obtained since 1958 and 6th EFF.
Pakistan and the IMF had struck a staff level agreement on July 12, 2024 and it was hoped that Islamabad’s request would be considered for approval by the IMF’s executive board in four to six weeks. The agreement was subject to approval by the IMF’s Executive Board and the timely confirmation of necessary financing assurances from Pakistan’s development and bilateral partners. The breakthrough was achieved in the aftermath of getting confirmation of $12 billion bilateral loans from Saudi Arabia, China and the UAE. Pakistan had introduced massive taxation measures in the annual budget to fulfill the condition of the IMF. Meanwhile, it has also enhanced the electricity tariff on the directions of the IMF. The government had assured for announcing mini budget in case of missing tax collection target. Provincial governments had agreed for giving surplus budget and imposition agriculture tax.
Pakistan’s foreign exchange reserves would improve after receiving loan tranche from the IMF. The country would also receive more funds from the bilateral and multilateral sources after IMF approves loan for Pakistan.
Earlier, in the absence of the International Monetary Fund (IMF) programme, the foreign inflows were almost dried in the first month of the current fiscal year as Pakistan received only $436 million under the foreign loans in July this year. The government had budgeted to borrow $19.4 billion from the international donors in the current fiscal year. However, it has received only over two percent in the first month of the year 2024-25, which is $436.3 million. Officials informed that the country would receive the foreign loans after the International Monetary Fund (IMF) approves the new loan programme for Pakistan, likely in the next month (September). The approval of a bailout package from the IMF for Pakistan was been delayed.
Earlier, the IMF said that the 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. Key policy goals of the authorities’ program include: “Sustainable public finances, through a gradual fiscal consolidation based on reforms to broaden the tax base and remove exemptions, while increasing resources for critical development and social spending. In this regard, the authorities plan to increase tax revenues through measures of 1½ percent of GDP in FY25 and 3 percent of GDP over the program. In particular, the recently approved FY25 budget targets an underlying general government primary surplus of 1 percent of GDP (2 percent in headline terms). Revenue collections will be supported by simpler and fairer direct and indirect taxation, including by bringing net income from the retail, export, and agriculture sectors properly into the tax system. At the same time, the FY25 budget provides additional resources to expand social protection by increasing both the generosity and coverage of BISP, education, and health spending.
The international rating agency Moody’s last month upgraded Pakistan’s credit rating by one notch, from Caa3 to Caa2, and revised its outlook from stable to positive, citing improving macroeconomic conditions, including liquidity and external position, which have moved from very weak levels.