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Pakistan, IMF reach $3 billion stand-by agreement

 Pakistan, IMF Reach $3 Billion Stand-By     Agreement




The International Monetary Fund (IMF) and Pakistan have agreed to a staff-level stand-by arrangement worth $3 billion, the institution announced. Pakistan, which is on the verge of default, has long awaited this decision.


>The agreement comes after an eight-month delay and provides some relief to Pakistan, which is suffering a severe balance of payments problem and declining foreign exchange reserves. It is subject to confirmation by the IMF board in July.
The $3 billion in payment, spread out over nine months, is more than Pakistan was anticipating. The remaining $2.5 billion of a $6.5 billion bailout package agreed upon in 2019 that ran out on Friday (today) was still pending disbursement to the nation.

Finance Minister Ishaq Dar told Reuters that Pakistan will get official documents regarding the agreement later on Friday, which he will "sign, seal, and return by tonight."


A $1.1 billion upfront payment will be made under the revised agreement soon after the July IMF board meeting, he said.


Dar stated that Pakistan wanted to increase the central bank's foreign exchange holdings to $14 billion by the end of July. "We have stopped the decline; now we must focus on growth," he continued.


The new stand-by arrangement builds on the 2019 plan, said IMF official Nathan Porter in a statement on Thursday, noting that Pakistan's economy had experienced various hurdles in recent years, including disastrous floods last year and commodity price increases as a result of the Ukraine crisis.


"As a result of these shocks, as well as some policy blunders, such as shortages caused by restrictions on the functioning of the FX market, economic growth has stalled." "Inflation, including for necessities, is extremely high," he continued.


"Despite the government's efforts to reduce imports and the trade deficit, reserves have fallen to extremely low levels." "Power sector liquidity conditions remain acute," Porter said in a statement.


"Given these challenges, the new arrangement would provide a policy anchor and a framework for financial support from multilateral and bilateral partners in the period ahead," he said.


Meanwhile, according to the IMF news release, "the IMF staff and the Pakistani authorities have reached a staff-level agreement on policies that will be supported by a Stand-By Arrangement (SBA)."


The new SBA would also "support the authorities' immediate efforts to stabilise the economy from recent external shocks, maintain macroeconomic stability, and provide a framework for financing from multilateral and bilateral partners," according to the statement.


"The new SBA will also create space for social and development spending through improved domestic revenue mobilisation and careful spending execution to help address the needs of the Pakistani people," according to the IMF.



"Steady policy implementation is critical for Pakistan to overcome its current challenges, including greater fiscal discipline, a market-determined exchange rate to absorb external pressures, and further progress on reforms, particularly in the energy sector, to promote climate resilience and help improve the business climate," it added.


According to the IMF, the parliament adopted the FY24 budget "in line with the goals of supporting fiscal sustainability and mobilising revenue, which will allow for greater social and development spending."


The budget also "advances a primary surplus of around 0.4% of GDP by taking some steps to broaden the tax base and increase tax collection from undertaxed sectors, as well as improving progressivity, while ensuring space to strengthen support for the vulnerable through the BISP (Benazir Income Support Programme)."


"It will be critical that the budget is carried out as planned, and that the authorities resist pressures for unbudgeted spending or tax exemptions in the coming period," the lender stressed.



The State Bank of Pakistan (SBP) has "withdrawn the guidance on import prioritisation and is committed to ensuring full market determination of the exchange rate," it continues.


"In the future, the SBP should continue to be proactive in reducing inflation, which disproportionately affects the most vulnerable, and maintain a foreign exchange framework free of restrictions on payments and transfers for current international transactions and multiple currency practises," the IMF said.



"In addition to generous climate-related pledges from the January 2023 Conference on Climate Resilient Pakistan held in Geneva, the authorities' efforts have focused on obtaining new financing and securing the rollover of debt falling due," the press release continued.


"This will support near-term policy efforts and replenish gross reserves, with the goal of bringing them to more comfortable levels," it claimed.



According to the IMF, the authorities' programme "also includes ongoing efforts to strengthen the viability of the energy sector (including through a timely FY24 annual rebasing), improve SOE (state-owned enterprise) governance, and strengthen the public investment management framework, including for projects needed to build resilience to climate change."


The international lender highlighted, "The full and timely implementation of the programme will be critical for its success in light of the difficult challenges."


Dar indicated last night that a staff-level agreement for a vital bailout deal with the IMF was "very close" and would be reached within the next 24 hours.



A total of $4 billion had already been made available. Dar previously told the media that the administration was working on a mechanism to try to unlock the remaining $2.5 billion under the IMF programme.


Following the agreement's completion today, Prime Minister Shehbaz Sharif announced it on his Twitter account, emphasising the benefits to Pakistan.




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