14 July,2022 , 02:46 amAdmin

Pakistan and the IMF Come to a Staff Level Agreement

Pakistan along with Pakistan and the International Monetary Fund (IMF) have signed a staff-level deal to conclude the 7th and 8th review for Pakistan's Extended Fund Facility (EFF) which will be expanded to $7 billion.

An IMF team, headed by Nathan Porter, has finalized discussions on the seventh and eighth reviews of Pakistan's economic plan which is supported through the IMF Extended Fund Facility (EFF).

The agreement has to be approved by IMF's Executive Board, according to the statement released by the IMF on Thursday.

The IMF statement says: "Subject to Board approval, about $1,177 million (SDR 894 million) will become available, bringing total disbursements under the program to about $4.2 billion. Additionally, in order to support program implementation and meet the higher financing needs in FY23, as well as catalyze additional financing, the IMF Board will consider an extension of the EFF until end-June 2023 and an augmentation of access by SDR 720 million that will bring the total access under the EFF to about US$7 billion."

"Pakistan is at an extremely difficult economic crossroads. A challenging external environment with procyclical domestic policy pushed domestic demand to levels that were unsustainable. This caused massive deficits in the external and fiscal markets in FY22, which contributed to rising inflation and reduced reserves buffers."

The document stated that in order for stabilizing the country and bringing the policy actions to conformity with the IMF-backed program, while also protecting the weak.

The most important policy goals include:

  • The budget is implemented at a steadfast pace. budget. The budget is designed to cut the amount of borrowing needed by the government through a principal surplus that is 0.4 percent of GDP. It is supported by current spending limits and general revenue mobilization efforts focusing especially on those with higher incomes. Development expenditure will be protected and the fiscal space will be created to expand social support programs. Provinces have agreed to aid the federal government's efforts to meet its fiscal goals in addition, Memoranda of Understanding have been approved by each provincial government to achieve this.
  • Reforms in the power sector need to be caught up. Due to the weak application of the agreed-upon plan for the power sector, the circular debt (CD) flow is predicted to increase significantly to around PRs 850 billion by FY22. This is in excess of the program's targets and threatens the sustainability of the sector and causes regular power interruptions. The authorities are determined to restart reforms, including crucially, the prompt adjustment of tariffs for power, which includes the delay in annual rebasing and the quarterly adjustments to improve the condition of the power sector and reduce load shifting.
  • A proactive monetary policy that guides inflation towards lower levels. Headline inflation was higher than 20 percent in June, which impacted especially those who are most vulnerable. In this context, the recent monetary policy hike was needed and appropriate. Moreover, the monetary policy must be designed to ensure that inflation remains steady down to the mid-term goal of 5 to 7 percent. In order to improve the transmission of monetary policy, the rate of two refinancing programs EFS as well as LTFF (which have recently months been increased by 700 bps or 500 bps, respectively) will remain tied to the rate of interest.
  • A greater degree of flexibility in exchange rates can help to cushion the impact of the effects of economic activity and help rebuild reserves to levels that are more prudent.
  • In reducing poverty and enhancing social security. The unconditional cash transfer (UCT) Kafalat scheme reached approximately 8 million households and a steady increase in the number of stipends to 14,000 PRs per family. In addition, a one-time cash transfer of 22,000 (Sasta Fuel Sasta Diesel, SFSD) was provided to approximately 8.6 million families in order to reduce the burden of raging inflation.
  • The authorities for FY23 have provided PRs 364 billion for BISP (up of PRs 250 for FY22) in order to draw 9 million families into the BISP security net and also to extend this SFSD scheme to other low-income, non-BISP beneficiaries.
  • Strengthen governance. To enhance governance and reduce corruption, authorities are currently establishing a comprehensive online asset declaration program. They also will undertake a thorough examination of the anti-corruption institutions (including the National Accountability Bureau) and National Accountability Bureau) to increase their effectiveness in the investigation and prosecution of corruption cases.

The IMF declared that the constant application of the policies outlined that underpin the SLA for the seventh and eighth reviews will aid in creating the conditions to ensure sustainable and inclusive growth. However, the authorities must be ready to implement any additional measures needed to meet the program's goals, given the increasing anxiety in the world financial and economic markets.

The IMF team acknowledges the Pakistani officials, the private sector, and partners in the development sector for their productive discussions and collaboration during the talks, the statement added.

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