IMF, Pakistan reach staff-level agreement on $7bn Extended Fund Facility

The International Monetary Fund (IMF) said on Friday that it has reached a staff level agreement (SLA) with Pakistan for a $7-billion, 37-month loan programme aimed at cementing stability and inclusive growth.

The IMF said the new Extended Fund Facility (EFF) is subject to approval by its Executive Board and obtain “timely confirmation of necessary financing assurances from Pakistan’s development and bilateral partners.”

This would include rollovers or disbursements on loans from Pakistan’s long-time allies Saudi Arabia, the United Arab Emirates, and China.

“Building on the economic stability achieved under the 2023 Stand-by Arrangement (SBA), IMF staff and the Pakistani authorities have reached a staff-level agreement … of about US$7 billion,” the IMF said in its press release.

Citi expects Pakistan to strike new $8bn IMF deal by end-July

The new programme will include steps to strengthen fiscal and monetary policy and reforms to broaden the tax base, improve State Owned Enterprises (SOE) management, strengthen competition, secure a level playing field for investment, enhance human capital, and scale up social protection through increased generosity and coverage in the Benazir Income Support Program (BISP), the IMF added.

“Continued strong financial support from Pakistan’s development and bilateral partners will be critical for the programme to achieve its objectives.”

The deal caps negotiations that started in May after Islamabad completed the previous short-term SBA that helped stabilise the economy and avert a sovereign debt default.

IMF will continue to discuss policy goals and actions

“The programme 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,” IMF Pakistan Mission Chief Nathan Porter was quoted as saying.

Pakistan’s Minister of State for Finance, Revenue and Power Ali Pervaiz Malik had said last week that Pakistan had been aiming for a new loan deal before the IMF Executive Board takes its annual recess in August. The IMF’s statement did not include any details on timing of board consideration of the deal.

Prior actions for IMF programme largely complete, says Aurangzeb

To prepare for the programme, Pakistan has already announced an ambitious tax revenue target of Rs13 trillion ($47 billion) for the fiscal year that began on July 1, a near-40% jump from the prior year.

Finance Minister Muhammad Aurangzeb this week said that almost all the prior actions of the IMF have been fulfilled for the next programme and an agreement would be reached, hopefully, in the current month.

Taxing Pakistan’s agriculture sector: IMF push ‘a move in the right direction’

He also claimed that in principle an understanding with the provinces has been reached with regard to taxing agriculture income, a point also stressed by the IMF. Aurangzeb’s remarks came while replying to questions of the media after the meeting of the National Assembly Standing Committee on Finance.

Pakistan has been plagued by crippling boom-and-bust cycles for decades, leading to 22 IMF bailouts since 1958 and is currently the IMF’s fifth-largest debtor, owing $6.28 billion as of July 11, according to IMF data.