Karachi, March 20, 2024 – Pakistan has reached a significant milestone in its economic partnership with the International Monetary Fund (IMF), as both parties have reached a staff-level agreement (SLA) for the second and final review under the Stand-By Arrangement (SBA).
This agreement is expected to pave the way for the release of the final tranche of $1.1 billion, bringing the total disbursement to $3 billion.
The SLA, subject to approval by the IMF’s Executive Board in late April 2024, signifies a positive assessment of Pakistan’s economic and financial position. The IMF acknowledged Pakistan’s improved economic and financial outlook, citing growth and confidence recovery due to prudent policy management and renewed inflows from multilateral and bilateral partners.
Analysts at Topline Securities said despite these improvements, the IMF underscored the need for ongoing policy and reform efforts to address Pakistan’s economic vulnerabilities. Modest growth projections for the current year and persistent inflation above target remain key challenges, necessitating continued policy interventions amidst elevated external and domestic financing needs.
Following the first review under the SBA, the IMF revised its projected GDP growth from 2.5 percent to 2 percent for FY24. However, contrary to IMF estimates, analysts anticipate Pakistan’s GDP to hover around 3 percent for the fiscal year.
Similarly, while the IMF projected an average inflation rate of 24 percent for FY24, analysts expect inflation to decrease to around 21 percent in March 2024 and fall below 20 percent in April 2024. However, the average inflation for the full year FY24 is estimated to be 25 percent.
Looking ahead, Pakistan has expressed interest in a successor medium-term Fund-supported program aimed at addressing fiscal and external sustainability weaknesses, fostering economic recovery, and promoting inclusive growth. Discussions for this new program are expected to commence in the coming months, focusing on strengthening public finance, restoring energy sector viability, managing inflation, and promoting private-led activity.
The government’s negotiations with the IMF for the new program, anticipated to be worth US$6-8 billion, are expected to center around broadening the tax net, debt restructuring, and managing circular debt, among other priorities.
Mr. Nathan Porter, who led the IMF team during the recent discussions, emphasized Pakistan’s commitment to economic stability and fiscal discipline. He highlighted efforts to achieve the FY24 general government primary balance target and maintain a prudent monetary policy to lower inflation and ensure exchange rate flexibility.
The IMF’s partnership with Pakistan has been instrumental in supporting the country’s stabilization efforts and building economic resilience. The successful conclusion of the SLA underscores the shared commitment to addressing Pakistan’s economic challenges and fostering sustainable growth in the years ahead.
