Pakistan and the International Monetary Fund (IMF) have reached a landmark agreement on a $7 billion aid package, aimed at stabilizing the nation’s struggling economy. This 37-month Extended Fund Facility (EFF) arrangement builds on the economic stability achieved under the 2023 Stand-by Arrangement (SBA).
In an overnight statement, the IMF confirmed the staff-level agreement, which is still subject to approval by the IMF’s Executive Board. The Washington-based lender emphasized that the new program seeks to support Pakistan’s efforts to solidify macroeconomic stability and foster conditions for stronger, more inclusive, and resilient growth.
The program includes measures to strengthen fiscal and monetary policies, reform state-owned enterprises (SOEs), and broaden the tax base. Additionally, it aims to enhance competition, ensure a level playing field for investment, improve human capital, and expand social protection through the Benazir Income Support Programme (BISP).
Continued robust financial support from Pakistan’s development and bilateral partners is deemed critical for the success of this program. An IMF team led by Nathan Porter, IMF’s Mission Chief to Pakistan, conducted discussions with Pakistani officials during a staff visit to Islamabad from May 13-23, 2024.
The new EFF arrangement aims to build on the macroeconomic stability achieved in the previous year by further strengthening public finances, reducing inflation, rebuilding external buffers, and eliminating economic distortions to encourage private sector-led growth. Under the agreement, Pakistan has committed to increasing tax revenues by 1.5% of GDP in FY25 and 3% over the program’s duration. This will be achieved through simpler and fairer direct and indirect taxation, including the proper inclusion of net income from the retail, export, and agriculture sectors into the tax system.
Additionally, both federal and provincial governments have agreed to rebalance spending activities, with provinces taking steps to enhance their tax-collection efforts, particularly in sales tax on services and agricultural income tax.
This latest agreement represents Pakistan’s continued reliance on the IMF for economic support. Earlier this year, the IMF approved the release of the final $1.1 billion tranche of a $3 billion bailout to Pakistan. Finance Minister Muhammad Aurangzeb indicated the government’s intention to seek a long-term loan to stabilize the economy post-bailout.
The deal comes just two weeks after Pakistan approved a tax-heavy budget for the 2024-25 fiscal year, aligned with IMF requirements. Analysts note that the new budget, totaling approximately $68 billion, aims to qualify Pakistan for a long-term IMF loan of $6 billion to $8 billion to help stabilize the economy. In 2023, Pakistan was on the brink of defaulting on its foreign debt payments.
This agreement marks a crucial step in Pakistan’s efforts to address its persistent economic challenges and secure a more stable financial future.