Pakistan and the International Monetary Fund (IMF) have agreed on a USD 7 billion bailout package that will last for more than three years to help the cash-strapped country address its ongoing economic issues.
“Imf staff and the Pakistani authorities have reached a staff-level agreement on a 37-month Extended Fund Facility Arrangement (EFF) of about USD 7 billion, building on the economic stability achieved under the 2023 Stand-by Arrangement (SBA),” the global lender said in an overnight statement, confirming the much-anticipated deal subject to approval by the IMF’s Executive Board.
The Washington-based lender went on to say that the new initiative is intended to assist government efforts to fortify macroeconomic stability and establish the framework for more robust, inclusive, and resilient growth in a nation struggling with financial difficulties.
It stated, “This includes steps to strengthen fiscal and monetary policy and reforms to strengthen competition, protect level playing fields for investment, improve the management of state-owned enterprises (SOEs), broaden the tax base, improve human capital, and scale up social protection through increased generosity and coverage in the Benazir Income Support Programme (BISP).”
The IMF added that the programme’s success will depend on Pakistan’s development and bilateral partners providing consistent, substantial financial support.
Nathan Porter, the IMF’s Mission Chief to Pakistan, led a team of IMF representatives in negotiations with the Pakistani side during the staff visit to Islamabad from May 13–23, 2024.
The new strategy, according to the statement, is to build on the hard-won macroeconomic stability that has been attained over the previous year by strengthening public finances, lowering inflation, reestablishing external buffers, and eliminating economic distortions in order to promote growth driven by the private sector.
As per the agreement, Pakistan has committed to augmenting its tax income by 1.5 per cent of GDP in FY25 and 3 per cent of GDP throughout the programme.
It stated that “fairer and simpler direct and indirect taxation, including the proper inclusion of net income from the retail, export, and agricultural sectors in the tax system, will be used to support revenue collections.”
According to the statement, the provinces will speed up their efforts to collect taxes, including sales tax on services and agricultural income tax, while the federal and provincial governments agreed to rebalance expenditure activities.
With this most recent accord, the nation has once again turned to international lenders for assistance in bolstering its economy and settling its debts through significant bailouts.
The IMF authorised earlier this year the prompt disbursement of the last USD 1.1 billion installment of a USD 3 billion bailout to Pakistan.
After the bailout package expires, the government intends to look for a long-term loan to help stabilise the economy, according to Finance Minister Muhammad Aurangzeb.
The agreement was made public barely two weeks after Pakistan received IMF approval to pass a tax-heavy budget for the 2024–25 fiscal year.
According to analysts, the goal of the new budget, which is estimated to be around USD 68 billion (up from USD 50 billion in the previous fiscal year), is to be eligible for a long-term USD 6 billion to USD 8 billion IMF loan, which will aid in stabilising the economy. Pakistan almost missed its 2023 debt payment deadline.
