IMF-Led Economic Reforms in Pakistan Boost Prospects for Financial Support

By | June 27, 2023

Pakistani Authorities Undertake Decisive Measures to Align Policies with IMF-Backed Economic Reform Programme

In a recent statement, Nathan Porter, the mission chief for Pakistan at the International Monetary Fund (IMF), commended the Pakistani authorities for their proactive approach in bringing policies in line with the IMF-supported economic reform programme. These measures, he explained, encompassed various significant steps aimed at bolstering economic stability and stimulating growth in the country.

Passage of a Budget to Widen the Tax Base and Boost Development Spending

One of the key initiatives undertaken by the Pakistani government was the successful passage of a comprehensive budget through the parliament. This budget serves as a catalyst for broadening the tax base, which, in turn, provides ample room for increased social welfare and development spending. By implementing these measures, Pakistan aims to address the needs of its more vulnerable populations and foster inclusive growth.

Enhancing the Functioning of the Foreign Exchange Market and Monetary Policy Tightening

Furthermore, the Pakistani authorities have made substantial strides in improving the efficiency of the foreign exchange market. This step is crucial in minimizing inflationary pressures and mitigating balance-of-payment challenges that have particularly affected the country’s vulnerable segments. Simultaneously, the tightening of monetary policy has been pursued to reinforce efforts to curb inflation and promote fiscal stability.

Ongoing Discussions with Pakistani Authorities for IMF Financial Support

Porter confirmed that the IMF team remains engaged in constructive discussions with the Pakistani authorities. The primary objective of these discussions is to promptly reach an agreement on financial support from the IMF. The collaboration between the two parties aims to secure the successful completion of the ninth review of the $6.5 billion Extended Fund Facility, which was initially agreed upon in 2019, and subsequently, the release of a $1.2 billion tranche.

Prospects of Acquiring Pending Funding and Ensuring Continued Financial Stability

Finance Minister Ishaq Dar expressed optimism regarding the pending funding under the IMF loan program. In an interview on the Geo News show ‘Capital Talk,’ he stated that the government is diligently working to establish a mechanism for accessing the full $2.6 billion in pending finances. Minister Dar emphasized that reaching an agreement with the IMF for the release of the much-needed $1.2 billion tranche is a priority. He also highlighted that an additional $1.4 billion remains unspent under the program, which the government hopes to secure.

With the IMF program set to expire on June 30, the completion of the ninth review becomes pivotal. Even after the review’s conclusion, a certain amount of funding will remain pending, as the prospects of a tenth review appear unlikely. To address this situation, the government aims to secure the release of the entire pending amount of $2.6 billion, including the $1.2 billion tranche.

Government’s Preparedness and Alternative Plans

Minister Dar acknowledged the importance of reaching an agreement with the IMF to ensure financial stability. In the event that an agreement is not reached, the government has prepared a contingency plan. However, Minister Dar refrained from disclosing further details on the plan, as doing so would not be in the national interest.

Dialogue with IMF and Addressing Concerns

Earlier this month, the IMF raised several concerns regarding Pakistan’s budget for the fiscal year 2024. The IMF emphasized the need for Pakistan to address these concerns before the pending tranche can be released. In response, the government expressed its flexibility in accommodating the IMF’s concerns and reaffirmed its commitment to finding an amicable solution through continued engagement.

Consequently, the government made several amendments to the upcoming fiscal year’s budget, incorporating fiscal tightening measures suggested by the IMF. These amendments were implemented in a last-ditch effort to secure critical funding and align with the IMF’s conditions. The revised budget was successfully passed by the Parliament, further indicating the government’s commitment to economic reforms.

Positive Developments in Recent Engagements

Prime Minister Shehbaz Sharif has been actively engaging with the IMF chief in multiple meetings and phone calls, demonstrating the government’s commitment to advancing the dialogue and securing financial support. During these discussions, the Prime Minister expressed his optimism that coordination on the IMF’s program points would yield a favorable decision from the global lender in the near future.

Furthermore, an official source revealed that the concerns raised by the IMF staff and the Ministry of Finance were effectively addressed, ensuring smoother proceedings. While the precise dates for the IMF’s executive board approval and the disbursement of funds are yet to be finalized, efforts are underway to expedite the process.

As the deadline of June 30 approaches, the Pakistani government remains steadfast in its commitment to completing the ongoing review and securing financial stability through continued cooperation with the IMF. The successful implementation of these measures will contribute to the country’s economic growth and improve the overall well-being of its citizens.

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