ISLAMABAD (Monitoring Desk): The International Monetary Fund (IMF) andPakistan have reached a staff-level agreementlinkoneconomic policies for a three-year extended fund facility.
Under the agreement, Pakistan will receive about US$6 billion for a periodof 39 months .
Below are details of the agreement provided on the IMF’s website.
** The Extended Fund Facility arrangement aims to support the authorities’strategy for stronger and more inclusive growth by reducing domestic andexternal imbalances, removing impediments to growth, increasingtransparency, and strengthening social spending.*
** An ambitious structural reform agenda will supplement economic policiesto rekindle economic growth and improve living standards.*
** Financing support from Pakistan’s international partners will becritical to support the authorities’ adjustment efforts and ensure that themedium-term program objectives can be achieved.*
In response to a request by the Pakistani authorities, an InternationalMonetary Fund (IMF) mission led by Mr. Ernesto Ramirez Rigo visitedIslamabad, Pakistan from April 29 to May 11 to discuss IMF support for theauthorities’ economic reform program. At the end of the visit, Mr. RamirezRigo made the following statement:
“The Pakistani authorities and the IMF team have reached a staff levelagreement on economic policies that could be supported by a 39-monthExtended Fund Arrangement (EFF) for about US$6 billion. This agreement issubject to IMF management approval and to approval by the Executive Board,subject to the timely implementation of prior actions and confirmation ofinternational partners’ financial commitments. The program aims to supportthe authorities’ strategy for stronger and more balanced growth by reducingdomestic and external imbalances, improving the business environment,strengthening institutions, increasing transparency, and protecting socialspending.
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“Pakistan is facing a challenging economic environment, with lacklustergrowth, elevated inflation, high indebtedness, and a weak externalposition. This reflects the legacy of uneven and procyclical economicpolicies in recent years aiming to boost growth, but at the expense ofrising vulnerabilities and lingering structural and institutionalweaknesses. The authorities recognize the need to address these challenges,as well as to tackle the large informality in the economy, the low spendingin human capital, and poverty. In this regard, the government has alreadyinitiated a difficult, but necessary, adjustment to stabilize the economy,including thorough support from the State Bank of Pakistan. These effortsneed to be strengthened. Decisive policies and reforms, together withsignificant external financing are necessary to reduce vulnerabilitiesfaster, increase confidence, and put the economy back on a sustainablegrowth path, with stronger private sector activity and job creation.
“The EFF aims to support the authorities’ ambitious macroeconomic andstructural reform agenda during the next three years. This includesimproving public finances and reducing public debt through tax policy andadministrative reforms to strengthen revenue mobilization and ensure a moreequal and transparent distribution of the tax burden. At the same time, acomprehensive plan for cost-recovery in the energy sectors and state-ownedenterprises will help eliminate or reduce the quasi-fiscal deficit thatdrains scarce government resources. These efforts will create fiscal spacefor a substantial increase in social spending to strengthen socialprotection as well as in infrastructure and human capital development. Themodernization of the public finance management framework will increasetransparency and spending efficiency. Provinces are committed to contributeto these efforts by better aligning their fiscal objectives with those ofthe federal government.
“The forthcoming budget for FY2019/20 is a first critical step in theauthorities’ fiscal strategy. The budget will aim for a primary deficit of0.6 percent of GDP supported by tax policy revenue mobilization measures toeliminate exemptions, curtail special treatments, and improve taxadministration. This will be accompanied by prudent spending growth aimedat preserving essential development spending, scaling up the Benazir IncomeSupport Program and improve targeted subsidies, with the goal of protectingthe most vulnerable segments of society.
“The State Bank of Pakistan will focus on reducing inflation, whichdisproportionately affects the poor, and safeguarding financial stability.A market-determined exchange rate will help the functioning of thefinancial sector and contribute to a better resource allocation in theeconomy. The authorities are committed to strengthening the State Bank ofPakistan’s operational independence and mandate.
“An ambitious structural reform agenda will supplement economic policies torekindle economic growth and improve living standards. Priority areasinclude improving the management of public enterprises, strengtheninginstitutions and governance, continuing anti-money laundering and combatingthe financing of terrorism efforts, creating a more favorable businessenvironment, and facilitating trade. To improve fiscal management theauthorities will engage provincial governments on exploring options torebalance current arrangements in the context of the forthcoming NationalFinancial Commission.
“The IMF team is grateful to the Pakistani authorities for open andconstructive discussions and their hospitality.”
