After the International Monetary Fund’s (IMF) Executive Board approved a new $7 billion bailout package for Pakistan, IMF Managing Director Kristalina Georgieva emphasized the program’s focus on economic recovery, reducing inflation, creating jobs, and fostering inclusive growth.
In a post on X following her meeting with Prime Minister Shehbaz Sharif, Georgieva highlighted the productive discussions they had. “Very productive meeting with Pakistan PM @CMShehbaz! We discussed Pakistan’s new Fund-supported program helping ongoing recovery, disinflation, increased tax fairness, and reforms to create new jobs and inclusive growth,” she said.
The new Extended Fund Facility (EFF), approved by the IMF, comes with the first tranche of $1.1 billion expected to be disbursed by September 30, 2024. This approval follows a period of severe economic challenges for Pakistan, marked by chronic mismanagement, the impacts of the COVID-19 pandemic, the war in Ukraine, supply chain issues that fueled inflation, and devastating floods in 2022 that affected a third of the country.
With dwindling foreign currency reserves, Pakistan faced a debt crisis and was compelled to seek an emergency loan from the IMF in the summer of 2023. The latest bailout underscores the need for “sound policies and reforms” to stabilize the economy.
The approval of the EFF also reflects significant financial assurances from friendly nations, as confirmed by IMF Pakistan Mission Chief Nathan Porter. China, Saudi Arabia, and the United Arab Emirates have provided substantial financial support, which extends beyond the agreement to roll over $12 billion in bilateral loans owed to these countries.
Finance Minister Muhammad Aurangzeb previously stated that these countries had committed to a three-year rollover of the loans, with annual renewals.
The new IMF program aims to achieve sustained economic growth by maintaining consistent monetary, fiscal, and exchange rate policies, increasing tax revenue, and improving public spending. Last year, Pakistan recorded its first primary budget surplus in 20 years, with the program now targeting a surplus of 2% of GDP. This objective partly depends on reforms to enhance tax collections from under-taxed sectors like retail.
In addition to financial assurances, sources in the Ministry of Finance revealed that the interest rate on the new loan is below 5%, and the IMF might disburse the second installment within the current fiscal year.
Key priorities under the new EFF-supported program include rebuilding policy-making credibility, entrenching macroeconomic stability, broadening the tax base, advancing reforms to strengthen competition, improving productivity and competitiveness, reforming state-owned enterprises (SOEs), enhancing public service provision and energy sector viability, and building climate resilience.
Prime Minister Shehbaz Sharif expressed satisfaction with the approval of the loan program and thanked Georgieva, her team, and the friendly countries for their support. During his meeting with Georgieva, the PM reaffirmed the government’s commitment to implementing structural reforms and promoting private sector development. He also appreciated the IMF’s technical assistance and capacity-building programs that have strengthened Pakistan’s institutions and improved economic management.
Georgieva underscored the importance of maintaining macroeconomic stability and promoting inclusive and sustainable growth. Both leaders agreed to strengthen cooperation between the government and the IMF to enhance economic stability and growth in Pakistan.
This comprehensive approach aims to guide Pakistan towards a more stable and prosperous economic future by addressing fundamental issues and fostering an environment conducive to long-term development.
