On Wednesday, Pakistan received a significant boost with the International Monetary Fund (IMF) Executive Board giving the green light to a nine-month Stand-By Arrangement (SBA) of around $3 billion. This substantial financial support is intended to bolster the country’s economic stabilization efforts amidst troubling times.
Pakistan’s economic landscape has been wrought with hardships, such as a spike in fiscal and external deficits, accelerating inflation, and a steady decline in reserve buffers, all of which were pronounced in FY23. The combination of an adverse external environment, destructive flooding, and policy missteps have only intensified the nation’s struggles.
This newly minted SBA is expected to serve as a policy beacon for Pakistan to steer it out of these challenging domestic and external economic imbalances. It also lays out a roadmap for financial assistance from various bilateral and multilateral partners.
The IMF’s focus for Pakistan is anchored in four key areas: executing the FY24 budget to facilitate essential fiscal readjustments and assure debt sustainability; shifting towards a market-determined exchange rate to effectively counter external shocks and eradicate FX shortages; implementing a stringent monetary policy for controlling inflation; and advancing structural reforms in critical sectors, including energy viability, SOE governance, and climate resilience.
With the IMF’s endorsement, Pakistan is poised to immediately receive approximately $1.2 billion. The remainder of the funds will be distributed incrementally over the duration of the program, with conditions tied to two quarterly reviews.
Commenting on the development, Kristalina Georgieva, Managing Director and Chair of the IMF, acknowledged the hardships that the Pakistani economy has suffered due to the effects of last year’s floods, extreme fluctuations in commodity prices, and the tightening of financing conditions both domestically and internationally. She added, “The new Stand-By Arrangement provides Pakistan with the chance to regain macroeconomic stability and rectify these imbalances through diligent and consistent policy application.”
Georgieva praised Pakistan’s FY24 budget for targeting a modest primary surplus, marking it as a crucial stride towards fiscal stabilization. She stressed the importance of disciplined management of non-critical primary expenditure and the pressing need for boosting the viability of the energy sector.
