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IMF agrees for tranche of $ 700 million

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Islamabad (Imran Y. CHOUDHRY) :- Former Press Secretary to the President, Former Press Minister to the Embassy of Pakistan to France, Former MD, SRBC Mr. Qamar Bashir analysis :
The International Monetary Fund (IMF) staff level team, led by Nathan Porter, approved an additional disbursement of approximately US$700 million to Pakistan subject to the approval of the IMF executive board. This once approved, will further bolster Pakistan’s ongoing stabilisation program supported by the IMF’s US$ 3 billion Stand-By Arrangement. With this, the total disbursements under the program will reach a total of US$1.9 billion.
But, the agreement did come with conditions. The IMF advised the government to prioritize improvements in tax administration and expanding the tax base. They urged for enhancements in governance and transparency, actions to bolster public financial management, and the fight against corruption. Simultaneously, the IMF stressed the need for concerted efforts to invigorate private sector growth. This involves initiatives targeted at refining the business environment and removing regulatory obstacles.
The journey to restore the IMF loan was undeniably lengthy and demanding. The program, halted since November 2022, lingered in suspension until June 2023 when former Prime Minister Shahbaz Sharif intervened. His last-minute appeal to IMF Director General Kristalina Georgieva revived the nearly defunct IMF program, securing a critical $6 billion bailout. However, this revival came with much harsher and stringent conditions attached.
Under immense pressure, the government implemented new taxes across various sectors and significantly reduced subsidies on essentials to bolster revenue and preserve resources. Stringent measures were taken to fortify the rupee against the US dollar, accompanied by substantial increases in petrol and utility prices. Petrol costs surged dramatically from Rs. 177 per litre to an alarming Rs. 277 per litre within a mere five months, triggering a whirlwind of hyperinflation.

The repercussions were staggering, with the Consumer Price Index (CPI) skyrocketing by 28.3% in July 2023, escalating further to 31.4% by September. Food inflation, a pivotal CPI component, soared to an alarming 38% in August 2023. These price hikes inflicted hardship, especially on lower-income households in Pakistan. The surge in transportation, cooking, and other essential expenses strained the budgets of common citizens, making it increasingly challenging for many to meet their basic needs.
Despite the political costs borne by the government of PDM and the interim government in implementing tough measures, these bitter pills are now proving beneficial for the country.
The IMF staff level mission has praised Pakistan’s dedication to fiscal consolidation and its efforts to expedite cost-reducing reforms in the energy sector. They also commend the commitment to restoring a market-determined exchange rate and pursuing reforms in state-owned enterprises and governance to attract investment and spur job creation. Simultaneously, Pakistan remains steadfast in bolstering social assistance programs.
The IMF has lauded Pakistan’s steadfast execution of the FY23-24 budget and its ongoing adjustment of energy prices, resulting in renewed foreign exchange flows and a consequent reduction in fiscal and external pressures. Additionally, the IMF foresees a potential decline in inflation in the upcoming months, as supply constraints ease and demand exhibits modest growth.
However, the IMF issued a cautionary note, emphasizing Pakistan’s vulnerability to significant external risks. These include heightened geopolitical tensions, a potential resurgence in commodity prices, and the possibility of further tightening in global financial conditions.
In an effort to fortify the economy against external shocks, the IMF advises sustained efforts to bolster macroeconomic sustainability. This involves laying the groundwork for balanced growth and continuing fiscal consolidation to reduce public debt while safeguarding development needs.

The IMF urged the government to target a primary surplus of at least 0.4 percent of GDP in FY24. This entails reducing both federal and provincial government expenditures, enhancing revenue performance, expanding the tax base by building capacity, and improving revenue mobilization. Moreover, emphasis is placed on enhancing the quality of public investment and spending to ensure more effective allocation and utilization of resources.
Acknowledging the hardships faced by vulnerable segments of society, the IMF advised the government to ensure timely disbursements for social protection under the BISP’s budget allocation. It advocated for expanding the Unconditional Cash Transfers (UCT) Kafaalat program to encompass 9.3 million families this fiscal year, with an annual stipend adjustment aligned with inflation. Additionally, the IMF urged enhancing the UCT Kafaalat program’s generosity level and increasing enrollment in Conditional Cash Transfer programs supporting children’s education and health.
Regarding the energy sector reforms, the IMF underscored the necessity of reducing costs and restoring viability. Highlighting the alarming threshold of the combined circular debt (CD) across power and gas sectors, which had surpassed 4 percent of GDP, urgent resolution was imperative. The IMF stressed the urgency of addressing this issue while safeguarding vulnerable consumers.
The IMF recommended the implementation of pending power tariff adjustments since July 2023 and emphasized the need for increased gas prices, effective November 1, 2023, to prevent further arrears jeopardizing the viability of these sectors and the provision of critical energy supplies.
Moreover, it emphasized the importance of fostering private sector participation in Distribution Companies (DISCOs), instituting measures for recovery and anti-theft actions, improving Power Purchase Agreement (PPA) terms, and reducing incentives for captive power. These actions were deemed crucial for revitalizing the energy sector and ensuring sustainable provision of energy resources.
The IMF has acknowledged the government’s administrative and regulatory measures to establish a market-determined exchange rate and rebuild FX reserves, resulting in normalized import and FX payments and expressed the hope for the sustained market-driven nature of the rupee to alleviate external pressures and continue the rebuilding of reserves.
Applauding the State Bank of Pakistan’s proactive monetary policy aimed at curbing inflation, the IMF anticipates a steady decline in inflation rates. They recommend ongoing vigilance to ensure the banking system’s stability by addressing undercapitalized financial institutions, maintaining foreign exchange exposures within regulatory limits, and aligning bank resolution and crisis management frameworks with international best practices.
Highlighting the imperative for ongoing reforms in state-owned enterprises (SOEs) and governance, the IMF urged improvements in the business environment, investment climate, and job creation. Emphasizing the implementation of the State-Owned Enterprises (SOE) law, the IMF recommended a triage plan, including the privatization of select SOEs.
Additionally, the IMF stressed the necessity for high governance and transparency standards in managing assets under the newly established Sovereign Wealth Fund (SWF) and the operations of the SIFC. To achieve this, they suggested ensuring public access to asset declarations from Cabinet members, forming a task force with independent expert participation, and conducting a comprehensive review of the anticorruption framework. These measures were essential to foster credibility and trust in the management of public assets and operations.
Yet, it’s undeniable that recent episodes haven’t been Pakistan’s proudest moments. Witnessing a Prime Minister, representing a populace of 250 million, imploring a Director General for the restoration of the IMF program was disheartening. It seemed to hinge the fate of millions on the mercy of an individual, compromising sovereignty and self-respect.
To truly establish ourselves as a dignified and self-sufficient nation, breaking free from the dependency on external support is paramount. Many nations have successfully achieved this feat, and Pakistan can follow suit.
The path to economic sovereignty entails stringent measures. It involves enhancing fiscal discipline by curbing unnecessary expenditures and expanding the tax base. Concurrently, diversifying exports beyond traditional sectors like textiles and rice is crucial. Investing in technology and innovation to heighten global competitiveness is equally vital.
It’s crucial to entice foreign direct investment by establishing an environment conducive to business and enhancing infrastructure. Investment in sectors like agriculture, modernizing practices for increased efficiency not only ensures food security but also fosters rural development.
Simultaneously, building an educated and skilled workforce necessitates an overhaul of the education system and an emphasis on enhancing human capital.
Transparency in governance, exploration of sustainable energy sources, promotion of export-oriented industries, support for small and medium-sized enterprises (SMEs), and simplification of trade procedures are equally vital components. This holistic approach addresses underlying structural weaknesses, fostering sustainable growth and diminishing dependency on external assistance.

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