IMF says staff-level agreement reached with Pakistan for release of $1.1bn loan tranche

The International Monetary Fund (IMF) said on Wednesday that it had reached a staff-level agreement with Pakistan on the final review for a $3 billion loan facility, a development that paves the way for the release of the much-awaited $1.1 billion.

"The agreement recognizes the strong program implementation by the State Bank of Pakistan and the caretaker government in recent months, as well as the new government’s intentions for ongoing policy and reform efforts to move Pakistan from stabilization to a strong and sustainable recovery," the US-based global lender said in a statement.

The statement said that the review is expected to be considered by the IMF's board in late April.

The global lender held discussions on the second review of Pakistan’s economic program supported by an Stand-By Arrangement (SBA) in Islamabad from March 14-19.

“Pakistan’s economic and financial position has improved in the months since the first review, with growth and confidence continuing to recover on the back of prudent policy management and the resumption of inflows from multilateral and bilateral partners," head of IMG team Nathan Porter said in a statement.

"However, growth is expected to be modest this year and inflation remains well above target, and ongoing policy and reform efforts are required to address Pakistan’s deep-seated economic vulnerabilities amidst the ongoing challenges posed by elevated external and domestic financing needs and an unsettled external environment," he added.

The key objectives of the programme, issued by the IMF on its website, are as follows.

1. Strengthening public finances, including through gradual fiscal consolidation and broadening the tax base (especially in undertaxed sectors) and improving tax administration to improve debt sustainability and create space for higher priority development and social assistance spending to protect the vulnerable.
2. Restoring the energy sector’s viability by accelerating cost reducing reforms including through improving electricity transmission and distribution, moving captive power demand to the electricity grid, strengthening distribution company governance and management, and undertaking effective anti-theft efforts. 
3. Returning inflation to target, with a deeper and more transparent flexible FX market supporting external rebalancing and the rebuilding of foreign reserves. 
4. Promoting private-led activity through the above mentioned actions as well as the removal of distortionary protection, advancement of SOE reforms to improve the sector’s performance, and the scaling-up of investment in human capital, to make growth more resilient and inclusive and enable Pakistan to reach its economic potential.

In the end, the IMF team thanked the Pakistani authorities, private sector, and development partners for fruitful discussions and cooperation throughout the mission.