An International Monetary Fund (IMF) delegation, led by Nathan Porter, IMF’s Mission Chief to Pakistan, has concluded discussions with Pakistani authorities regarding support for the country’s medium-term policy and reform plans. The discussions, held in Islamabad from May 13-23 and virtually thereafter, resulted in a staff-level agreement on a comprehensive economic program.
Mr. Porter issued a statement confirming the agreement, which outlines a 37-month Extended Fund Arrangement (EFF) valued at SDR 5,320 million (approximately US$7 billion at current exchange rates). This agreement awaits approval by the IMF’s Executive Board and the confirmation of necessary financing assurances from Pakistan’s development and bilateral partners.
The proposed program aims to build on the macroeconomic stability achieved over the past year by focusing on strengthening public finances, reducing inflation, rebuilding external buffers, and eliminating economic distortions to encourage private sector-led growth. Key policy objectives include:
1. Sustainable Public Finances:
– Gradual fiscal consolidation through tax base expansion and removal of exemptions.
– Increased resources for critical development and social spending.
– Aiming for tax revenue measures of 1½ percent of GDP in FY25 and 3 percent of GDP over the program.
– Targeting an underlying general government primary surplus of 1 percent of GDP in FY25.
2. Federal-Provincial Fiscal Balance:
– A National Fiscal Pact aligning spending with the 18th constitutional amendment.
– Provincial governments to increase spending on education, health, social protection, and public infrastructure.
– Harmonization of Agriculture Income Tax regimes with federal tax laws effective January 1, 2025.
3. Inflation Reduction and Financial Stability:
– Monetary policy focused on disinflation to protect real incomes.
– The State Bank of Pakistan (SBP) to maintain a flexible exchange rate and improve FX market transparency.
– Measures to deepen access to financing and strengthen financial institutions.
4. Energy Sector Viability:
– Adjusting energy tariffs and implementing cost-reducing reforms.
– Committing to targeted subsidy reforms, shifting support to the Benazir Income Support Programme (BISP).
5. Private Sector and Export Dynamism:
– Improving the business environment and removing state distortions.
– Advancing state-owned enterprise (SOE) reforms and privatization.
– Strengthening governance and transparency of the Pakistan Sovereign Wealth Fund.
– Phasing out Special Economic Zone incentives and agricultural support prices.
The IMF team expressed gratitude to the Pakistani authorities, private sector, and development partners for their hospitality and productive discussions during the visit.
This program, endorsed by both federal and provincial governments, represents a significant step towards achieving long-term economic stability and growth in Pakistan.
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