Pak, IMF reach Staff-level Agreement on $3 bn 'stand-by arrangement'

ISLAMABAD: Pakistan and the International Monetary Fund (IMF) on Friday reached the staff-level agreement (SLA) of USD 3 billion, the global lender announced, a sight of relief for the cash-strapped country.

The decision came after the IMF staff team led by Nathan Porter held in-person and virtual meetings with the Pakistani Authorities under an IMF Stand-by Arrangement (SBA).

"I am pleased to announce that the IMF team has reached a staff-level agreement with the Pakistani authorities on a nine-month Stand-by Arrangement (SBA) in the amount of SDR2,250 million (about USD 3 billion or 111 per cent of Pakistan's IMF quota). The new SBA builds on the authorities' efforts under Pakistan's 2019 Extended Fund Facility (EFF)-supported program which expires end-June. This agreement is subject to approval by the IMF's Executive Board, which is expected to consider this request by mid-July," Nathan Porter, the IMF's Mission Chief to Pakistan, said in a statement.

"The new SBA builds on the authorities' efforts under Pakistan's 2019 EFF-supported programme which expires end-June. This agreement is subject to approval by the IMF's Executive Board, which is expected to consider this request by mid-July," the statement added.

The USD 3 billion funding, spread over nine months, is higher than expected for Pakistan. The country was awaiting the release of the remaining USD 2.5 billion from a $6.5 billion bailout package agreed in 2019, which expires on Friday (today).

With sky-high inflation and foreign exchange reserves barely enough to cover one month of controlled imports, Pakistan has been facing its worst economic crisis in decades, which analysts say could have spiralled into a debt default in the absence of the IMF deal.

IMF also pointed out that since the completion of the combined seventh and eighth reviews under the 2019 Extended Fund Facility (EFF) in August 2022, Pakistan's economy has faced several external shocks such as the catastrophic floods in 2022 that impacted the lives of millions of Pakistanis and an international commodity price spike in the wake of Russia's war in Ukraine, the statement read.

As a result of these shocks as well as some policy missteps--including shortages from constraints on the functioning of the FX market--economic growth has stalled. Inflation, including for essential items, is very high. Despite the authorities' efforts to reduce imports and the trade deficit, reserves have declined to very low levels. Liquidity conditions in the power sector also remain acute, with the further buildup of arrears (circular debt) and frequent load-shedding, as per the official statement.

The deal comes after an eight-month delay and offers some respite to Pakistan, which is battling an acute balance of payments crisis and falling foreign exchange reserves.

After the deal was announced early on Friday, Finance Minister Ishaq Dar tweeted, "Alhumdulillah." Dar had said on Thursday the deal was expected any time soon.

According to Geo News, the federal government has taken a slew of policy measures since an IMF team arrived in Pakistan earlier this year, including a revised 2023-24 budget last week to meet the lender's demands.

Other adjustments demanded by the IMF before clinching the deal included reversing subsidies in power and export sectors, hikes in energy and fuel prices, jacking up the key policy rate to 22 per cent, a market-based currency exchange rate and arranging for external financing.

It also got Pakistan to raise over 385 billion rupees (USD 1.34 billion) in new taxation through a supplementary budget for the 2022-23 fiscal year and the revised budget for 2023-24. The painful adjustments have already fueled all-time high inflation of 38% year-on-year in May, as per Geo News.