Pakistan, IMF reach $6 billion Extended Fund Facility agreement

ISLAMABAD, May 12 (APP):Pakistan and the International Monetary Fund (IMF) Sunday reached an agreement under which the Fund would provide $6 billion Extended Fund Facility over the period of three years, Prime Minister’s Advisor on Finance Dr Abdul Hafeez Shaikh said.

Talking to state media after the talks between the technical team of the Government of Pakistan and the IMF Mission, the advisor said after months of discussions, a loan programme had been finalized with the International Monetary Fund.

He said Pakistan would get $6 billion assistance in three years, while an additional amount of two to three billion dollars was likely to come from World Bank and Asian Development Bank on less interest rate.

Dr Abdul Hafeez Shaikh said the IMF programme would be implemented after its formal approval by the Fund’s board. The agreement would improve the debt situation and send a positive signal to the world to attract foreign investment, he added.

The advisor said the IMF programme would provide an opportunity to bring structural changes to handle issues pertaining to loss-making state owned enterprises, exports, and to enhance revenue.

He said the country’s economy was passing through hard times for the last couple of years, stressing the need for structural reforms to promote sustainable growth.

The subsidies would have to be withdrawn from the rich segments of the society, he said, adding the government was determined to provide relief to the vulnerable segments. The burden of electricity tariff increase would not be put on the poor, he said.

Meanwhile, the IMF, in a statement, said the Extended Fund Facility arrangement was aimed at supporting the authorities’ strategy for stronger and more inclusive growth by reducing domestic and external imbalances, removing impediments to growth, increasing transparency, and strengthening social spending.
An ambitious structural reform agenda would supplement economic policies to rekindle economic growth and improve living standards, it added.

Financing support from Pakistan’s international partners would be critical to support the authorities’ adjustment efforts and ensure that the medium-term programme objectives can be achieved.

According to the statement, an IMF Mission led by Ernesto Ramirez Rigo visited Islamabad, Pakistan from April 29 to May 11 to discuss the IMF’s support for the authorities’ economic reform programme.

At the end of the visit, Ramirez Rigo stated, “The Pakistani authorities and the IMF team have reached a staff level agreement on economic policies that could be supported by a 39-month Extended Fund Arrangement (EFF) for about US$6 billion.”

This agreement, he said, was subject to the IMF management approval and to approval by the Executive Board, subject to the timely implementation of prior actions and confirmation of international partners’ financial commitments.

“The programme aims to support the authorities’ strategy for stronger and more balanced growth by reducing domestic and external imbalances, improving the business environment, strengthening institutions, increasing transparency, and protecting social spending,” he added.

“Pakistan is facing a challenging economic environment, with lackluster growth, elevated inflation, high indebtedness, and a weak external position. This reflects the legacy of uneven and procyclical economic policies in recent years aiming to boost growth, but at the expense of rising vulnerabilities and lingering structural and institutional weaknesses,” Rigo said.

The authorities, he said, recognized the need to address those challenges, as well as to tackle the large informality in the economy, the low spending in human capital, and poverty.

In that regard, the government had already initiated a difficult, but necessary, adjustment to stabilize the economy, including thorough support from the State Bank of Pakistan, he added.

The efforts needed to be strengthened, Rigo said, adding decisive policies and reforms, together with significant external financing were necessary to reduce vulnerabilities faster, increase confidence, and put the economy back on a sustainable growth path, with stronger private sector activity and job creation.

“The EFF aims to support the authorities’ ambitious macroeconomic and structural reform agenda during the next three years. This includes improving public finances and reducing public debt through tax policy and administrative reforms to strengthen revenue mobilization and ensure a more equal and transparent distribution of the tax burden.”

At the same time, he said, a comprehensive plan for cost-recovery in the energy sectors and state-owned enterprises would help eliminate or reduce the quasi-fiscal deficit that drains scarce government resources.

“These efforts would create fiscal space for a substantial increase in social spending to strengthen social protection as well as in infrastructure and human capital development.

“The modernization of the public finance management framework would increase transparency and spending efficiency. Provinces are committed to contribute to these efforts by better aligning their fiscal objectives with those of the federal government.

“The forthcoming budget for FY2019/20 is a first critical step in the authorities’ fiscal strategy. The budget will aim for a primary deficit of 0.6 percent of GDP supported by tax policy revenue mobilization measures to eliminate exemptions, curtail special treatments, and improve tax administration,” the statement said.

It would be accompanied by prudent spending growth aimed at preserving essential development spending, scaling up the Benazir Income Support Programme and improve targeted subsidies, with the goal of protecting the most vulnerable segments of society, it added.

“The State Bank of Pakistan will focus on reducing inflation, which disproportionately affects the poor, and safeguarding financial stability. A market-determined exchange rate will help the functioning of the financial sector and contribute to a better resource allocation in the economy. The authorities are committed to strengthening the State Bank of Pakistan’s operational independence and mandate,” Rigo said.

According to the statement, an ambitious structural reform agenda would supplement economic policies to rekindle economic growth and improve living standards.

“Priority areas include improving the management of public enterprises, strengthening institutions and governance, continuing anti-money laundering and combating the financing of terrorism efforts, creating a more favorable business environment, and facilitating trade.

“To improve fiscal management the authorities will engage provincial governments on exploring options to rebalance current arrangements in the context of the forthcoming National Financial Commission,” Ramirez Rigo said.