IMF Programme Updates

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Aurangzeb pledges aggressive reforms at IMF meeting[

Anwar Iqbal
April 18, 2024

Finance Minister Muhammad Aurangzeb speaks at the JP Morgan seminar on Pakistan's Economic Policy Outlook in Washington D.C., United Stated on APril 17, 2024. — Photo via PID

WASHINGTON: In a meeting with the IMF chief and some members of its board of governors, Finance Minister Muhammad Aurangzeb has reaffirmed Pakistan's resolve to carry out "aggressive reforms" to stabilise its economy.

These discussions were part of a meeting of Middle East and North Africa (MENAP) ministers and governors with IMF Managing Director Kristalina Georgieva held on Tuesday.

Mr Aurangzeb "underscored aggressive reforms, including broadening the tax net, privatising loss-making SOEs, expanding social safety nets and facilitating the private sector," his team said in a statement issued a day after the meeting.

The minister underscored the implications of geo-economic fragmentation on Pakistan and expressed gratitude to the IMF, multilateral development banks, and "time-tested sincere bilateral partners" for their unwavering support during these trying times.

He stressed the significance of reallocating a nation's special drawing rights (SDRs) within the IMF to tackle economic hurdles effectively. Additionally, he highlighted the necessity of reassessing surcharge policies and giving precedence to the IMF's Resilience and Sustainability Trust (RST) to address climate vulnerabilities.

Assures lender of broadening tax net, privatising SOEs, expanding social safety nets, facilitating private sector

The IMF's Resilience and Sustainability Trust (RST) has been in operation for more than a year, with the initial 17 countries securing commitments of financial assistance. Pakistan, identified as a low emitter yet severely impacted by climate change, is also seeking aid from this fund.

Advocating for a more proactive and responsive Global Financial Safety Net to address heightened risks, the minister applauded the IMF's renewed focus on Capacity Building through Regional Capacity Development Centres (RCDCs).

The minister advocated for a proactive global financial safety net to address heightened risks and appreciated the IMF's renewed emphasis on capacity-building through regional capacity development centres. He also stressed the importance of collaborative efforts for sustainable economic development.

Pakistan, in pursuit of another long-term package — its 24th thus far — from the IMF, has formulated a comprehensive economic recovery plan. This plan encompasses three primary components: taxation, energy, and streamlining the privatisation of state-owned enterprises (SOEs), including PIA.

The IMF board is scheduled to convene on April 29 to deliberate on releasing the final tranche of its current programme with Pakistan. Subsequently, discussions between IMF staff and Islamabad regarding the new package are anticipated to commence.

During Tuesday's meeting, the IMF acknowledged Pakistan's progress in meeting its conditions, while Pakistani officials advocated for a new plan tailored more specifically to Pakistan's needs.

Later, at a JP Morgan Seminar on Pakistan's Economic Policy Outlook, Mr Aurangzeb emphasised positive economic indicators such as the robust performance of the agriculture sector, decreasing inflationary pressures, a stable exchange rate, shrinking trade deficit, and robust remittance inflows.

He informed the participants that Pakistan was committed to engaging in a broader and extended programme with the IMF.

At a meeting with Ajay Banga, president of the World Bank Group, the minister emphasised Pakistan's advancements under the nine-month SBA programme and the ongoing reforms in key sectors such as taxation, energy and privatisation.

Both parties acknowledged the necessity of establishing a 10-year rolling Country Framework Plan.

The World Bank president pledged his complete support for Pakistan's reform initiatives and digitalisation efforts aimed at stabilising the economy and boosting revenues. Additionally, the minister extended an invitation for the president to visit Pakistan.

Published in Dawn, April 18th, 2024

 

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IMF ‘very receptive’ in terms of agreeing to consider larger, longer programme: finance minister​

Dawn.com
April 22, 2024

Finance Minister Muhammad Aurangzeb speaks during an interview with AFP at the Embassy of Pakistan in Washington, DC on April 15. — AFP

Finance Minister Muhammad Aurangzeb has stated that Pakistan is on track to secure a new loan from the International Monetary Fund (IMF), adding that the money lender had been “very receptive in terms of agreeing to consider a larger, longer programme”.

 

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IMF board to finalise $1.1b disbursement on Monday​

Funding is last tranche of $3b standby arrangement which was secured last summer and which runs out this month

Reuters
April 24, 2024

The International Monetary Fund (IMF) logo is seen outside the headquarters building in Washington, US, September 4, 2018. PHOTO: REUTER


KARACHI: The executive board of the International Monetary Fund (IMF) will meet on April 29 to discuss the approval of $1.1 billion funding for Pakistan, the fund said on Wednesday.

The funding is the second and last tranche of a $3 billion standby arrangement with the IMF, which was secured last summer to avert a sovereign default and which runs out this month.

The country is seeking a new long-term, larger IMF loan. Finance Minister Muhammad Aurangzeb has said Islamabad could secure a staff-level agreement on the new programme by early July.

Islamabad says it is seeking a loan over at least three years to help macroeconomic stability and execute a long-due and painful structural reforms, though Aurangzeb has declined to detail what size of programme the country seeks.

Islamabad is yet to make a formal request, but the Fund and the government are already in discussions.

If secured, it would be the 24th IMF bailout for Pakistan.

The $350 billion economy faces a chronic balance of payment crisis, with nearly $24 billion to repay in debt and interest over the next fiscal year - three-time more than the central bank's foreign currency reserves.

The finance ministry expect the economy to grow by 2.6% in the current fiscal year ending June, while average inflation is projected to stand at 24%, down from 29.2% in fiscal year 2023/2024. Inflation soared to a record high of 38% last May.

 

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IMF approves disbursement of $1.1 billion loan tranche​

Pakistan completes second bailout package in its history of 23 deals

Shahbaz Rana
April 29, 2024

ISLAMABAD:
The International Monetary Fund (IMF) on Monday approved disbursement of $1.1 billion last loan tranche, marking the successful end of the second bailout package in eight years but it took heavy toll in the shape of unbearable inflation and slowing economic wheel.

The Executive Board of the IMF approved the completion of the second review of the $3 billion Standby Arrangement, confirmed the Ministry of Finance. This also paved the way for the release of the last loan tranche of $1.1 billion. The IMF board also backed Pakistan’s intent to get another bailout package to ensure ‘permanency in economic stabilisation and deepen structural reforms’.

The global lender approved the completion of the second review of the arrangement hours after Prime Minister Shehbaz Sharif said that the country’s debt trap had become a ‘death trap’, calling it the biggest challenge for his government. He made these remarks while addressing the closing session of the World Economic Forum (WEF) in Riyadh, Saudi Arabia.

“We have a serious problem of inflation before us. And then we have a debt trap, I prefer calling it a death trap, which has crumbled our economy,” said Shehbaz. The PM also met with the Managing Director of the IMF Kristalina Georgieva in Saudi Arabia on Sunday to discuss the next bailout programme.

Deviating from its transparency policy, the IMF did not list Pakistan in the April 29th calendar being issued on its website.

Prime Minister Shehbaz, Governor State Bank of Pakistan Jameel Ahmad and the Secretary Finance Imdad Ullah Bosal played pivotal roles in first securing the deal in June 2023 and then pushing it towards the finishing line.

In July last year, Pakistan had signed the nine-month programme for the $3 billion, which stabilised the economy and brought the current account deficit under control. However, the budget deficit remained out of the control and is going to end around 7.4% of the GDP as per IMF’s own estimates.

It is the second bailout package that the country completed in past eight years. Last time, it had successfully implemented the $6 billion Extended Fund Facility from 2013-2016. But it again had to seek another bailout package in 2019, which remained unsuccessful.

Former prime minister Shahid Khaqan Abbasi said on Sunday that seeking another IMF programme was akin to “admitting failure”.

The SBA also led to a significant increase in the burden on the people in the shape of higher taxes on the salaried class and an exorbitant hike in the prices of fuel, gas and electricity.

The central bank lost its autonomy to the IMF and has remained unable to lower the interest rates despite a significant reduction in the current and the forwarding looking inflation projections.

It is high time now that the IMF should allow space for some economic growth, as the poverty rate is high at 40% with 10 million more Pakistanis on the verge of slipping into the poverty trap.

During the staff level discussions, Pakistan had assured the IMF that it will “continue with the timely implementation of power and gas tariff adjustments to keep average tariffs consistent with cost recovery while protecting the vulnerable through the existing progressive tariff structures, thus avoiding any net circular debt accumulation in FY24”.

Since then there has been consistent significant increase in the electricity prices in shape of monthly fuel cost adjustment. The government also twice increased the gas prices under the nine-month SBA arrangement.

Yet, the total power and gas sector circular debt amounted to over Rs5.7 trillion or 5.4% of the size of the economy.

Pakistan has committed to the IMF that it would keep the circular debt restricted to Rs2.310 trillion by June 2024 – equal to last year’s level. However, the flow of the debt has already reached Rs2.7 trillion, which the government plans to reduce to the agreed level through a combination of budgeted subsidies and tariff hikes.

Under the $3 billion Standby Arrangement, Pakistan had committed to keep the primary budget surplus at 0.4% of the GDP. But a World Bank report of this month stated that the government would miss the primary budget surplus target.

Despite the IMF programme, Pakistan could not attract sufficient foreign debt related inflows. As a result, the central bank also had to resort to over $5 billion purchases from the market to keep the reserves stable around $8 billion.

The international credit rating agencies also did not improve Pakistan’s credit ratings in spite of the successful completion of the IMF programme. The highly risky credit ratings kept the foreign private lenders away from Pakistan.

The IMF noted that Pakistan’s economic and financial position had improved in the months since the first review. It added that growth and confidence in the country continued to recover on the back of a prudent policy management as well as the resumption of inflows from multilateral and bilateral partners.

For the ongoing fiscal year, the government had set the GDP growth target at 3.5% and the inflation at 21%. The last IMF report showed that Pakistan’s economy may grow by 2% and its inflation rate would be around 25%.

The only area of success under the IMF deal was that the country performed well in reduction of the current account deficit, which even remained better than the IMF’s expectations. This was achieved by restricting imports as there has not been much improvement in the exports. The remittances remained under stress during the programme period.

Pakistan has already expressed an interest in a successor medium-term Extended Fund Facility programme with the aim of permanently resolving the country’s fiscal and external sustainability weaknesses, strengthening its economic recovery as well as laying the foundations for strong, sustainable, and inclusive growth.