ISLAMABAD Pakistan has reached an accord with the International Monetary Fund over a three-year, USD 6 billion bailout package aimed at shoring up fragile public finances and strengthening the slowing economy, officials said on Sunday.
Pakistans Finance Minister Hafeez Shaikh told PTV television he hoped the accord, which must still be approved by the IMF board in Washington, would be the last for Pakistan, which has had repeated bailouts for the past three decades.
Pakistan is facing a challenging economic environment, with lacklustre growth, elevated inflation, high indebtedness, and a weak external position, the IMF said in a statement outlining the framework of a deal reached after months of negotiations.
Prime Minister Imran Khans government came to power last year reluctant to seek what is now expected to be its 13th IMF bailout since the late 1980s.
Inheriting an economy with yawning budget and current account deficits, his government initially sought billions of dollars in funding from friendly countries including China, Saudi Arabia and the United Aran Emirates.
But with inflation climbing to over 8 percent, the Pakistani rupee losing a third of its value over the past year, and foreign exchange reserves barely enough to cover more than two months of exports, it was forced to turn to the Fund.
The package will include an ambitious structural reform agenda to boost growth, which the IMF sees slowing to 2.9 per cent this year from 5.2 per cent last year.
It also envisages tax reforms to improve public finances and cut public debt as well as a comprehensive plan for cost-recovery in the creaking energy sectors, where mounting debt backlogs have acted as a growing drain on government resources.
The budget for the coming 2019/20 fiscal year will aim for a primary deficit, not including debt repayments, of 0.6 per cent of gross domestic product.
The IMF said the State Bank of Pakistan would focus on reducing inflation and safeguarding financial stability.
It said a market-determined exchange rate would help the functioning of the financial sector.
Decisive policies and reforms must for Pakistan’s economic stability: IMF
Pakistan is facing a “challenging” economic environment and “decisive” policies and reforms are needed to stablise the economy, the IMF has warned as it reached a deal with the cash-strapped government of Prime Minister Imran Khan on a USD 6 billion bailout to stave off an financial crisis.
The funding, which still needs approval from the International Monetary Fund’s management, would be provided over three years. The agreement comes after months of negotiations that saw the sacking of Pakistan’s finance minister, the governor of the central bank as well as the top revenue officer.
Pakistan has faced an economic crisis with short supplies of foreign currency reserves and stagnating growth. In February, the central bank had only USD 8 billion left in foreign reserves.
“Pakistan is facing a challenging economic environment, with lackluster growth, elevated inflation, high indebtedness, and a weak external position,” IMF representative Ernesto Ramirez Rigo said in statement on Sunday after the agreement was reached with the Pakistan government.
“This reflects the legacy of uneven and procyclical economic policies in recent years aiming to boost growth, but at the expense of rising vulnerabilities and lingering structural and institutional weaknesses.
The authorities recognise the need to address these challenges, as well as to tackle the large informality in the economy, the low spending in human capital, and poverty,” he said.
“The Pakistani authorities and the IMF team have reached a staff level agreement on economic policies that could be supported by a 39-month Extended Fund Arrangement (EFF) for about USD 6 billion,” Rigo said.
The agreement is subject to IMF management approval and to approval by the Executive Board, subject to the timely implementation of prior actions and confirmation of international partners’ financial commitments.
He said the bailout programme aims to support the Pakistani authorities’ strategy for stronger and more balanced growth by reducing domestic and external imbalances, improving the business environment, strengthening institutions, increasing transparency, and protecting social spending.
Pakistan has so far received a total of USD 9.1 billion in financial aid packages from friendly countries like China, Saudi Arabia and the UAE during the current fiscal year.
Adviser to Pakistan Prime Minister on Finance Dr Abdul Hafeez Shaikh said the government could not have bridged the financing gap of USD 12 billion on its own that he said was created by a weak economy.
Asked to share the conditions that Pakistan has agreed to as part of the agreement, Shaikh said there were many things desired by the Fund that the government already saw as being in the country’s interest; they include aligning expenditure with resources, improve the functioning of loss-making state-owned enterprises, curtail the subsidies available to the wealthy classes and tax the rich segments.
“These structural changes are in our interest if we want to take our people in the direction of prosperity and improve their quality of life,” he was quoted as saying by Dawn newspaper.