IMF Executive Board approves $3bn Stand-By Arrangement for Pakistan

The Executive Board of the International Monetary Fund (IMF) approved on Wednesday the new $3-billion Stand-By Arrangement (SBA) for Pakistan, which immediately allows the disbursement of about $1.2 billion.

“Today, the Executive Board of the IMF approved a 9-month SBA for Pakistan for an amount of SDR2,250 million (about $3 billion, or 111 percent of quota) to support the authorities’ economic stabilisation program,” it said in a statement.

The development comes nearly two weeks after the IMF reached a staff-level agreement with Pakistani authorities on policies to be supported by the nine-month SBA.

“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 programme’s duration, subject to two quarterly reviews,” the IMF added in its statement.

The remaining amount will be phased over the programme’s duration, subject to two quarterly reviews: IMF

The IMF said that 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 IMF said the SBA would focus on:

• Implementation of the FY24 budget to facilitate Pakistan’s needed fiscal adjustment and ensure debt sustainability, while protecting critical social spending;

• A return to a market-determined exchange rate and proper FX market functioning to absorb external shocks and eliminate FX shortages;

• An appropriately tight monetary policy aimed at disinflation; and

• Further progress on structural reforms, particularly with regard to energy sector viability, SOE governance, and climate resilience.

‘SBA approval to bolster Pakistan’s economic position’

Moments after the approval, Prime Minister Shehbaz Sharif stated in a tweet that this is a major step forward in the government’s efforts to stabilise the economy and achieve stability.

“It bolsters 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 said.

“This milestone, which was achieved against the heaviest of odds & against seemingly impossible deadline, could not have been possible without excellent team effort,” he said.

“I would commend Finance Minister Ishaq Dar & his team at the Ministry of Finance for their hard work. My special thanks are also due to Kristalina Georgieva, MD of IMF, and her team for their support & cooperation.”

‘New SBA offers Pakistan an opportunity to regain macroeconomic stability’

The authorities’ new Stand-By Arrangement, implemented faithfully, offers Pakistan an opportunity to regain macroeconomic stability and address these imbalances through consistent policy implementation: IMF Managing Director Kristalina Georgieva

Following the Executive Board discussion, Georgieva, the IMF Managing Director and Chair, said Pakistan’s economy was hit hard by significant shocks last year including the spillovers from the severe impacts of floods, large volatility in commodity prices, and the tightening of external and domestic financing conditions.

“These factors together with uneven policy implementation under the Extended Fund Facility 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.”

Georgieva said the FY24 budget, which targets a modest primary surplus, is a welcome step toward fiscal stabilisation.

“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,” she added.