ISLAMABAD: The International Monetary Fund (IMF) Executive Board on Wednesday approved a 37-month Extended Fund Facility (EFF) program worth $7 billion for Pakistan, providing a crucial lifeline as the incumbent government is optimistic that it would be the country’s last IMF program, local media reported.
The IMF board approved the loan program after the Pakistani government secured commitments for $12 billion in bilateral loans from friendly countries, which were essential for the IMF’s approval. The board also authorized the immediate release of the first loan tranche of nearly $1.1 billion. It is the 25th IMF program that Pakistan has obtained since 1958 and the 6th EFF.
The financing package aims to help stabilize Pakistan’s economy, which has been under significant strain due to rising debt levels, inflation, and a balance of payments crisis. The current administration is optimistic that this will be the last IMF program needed, signaling a shift towards more sustainable financial management.
The new bailout package targets achieving macroeconomic stability by consolidating public finances, rebuild foreign exchange reserves, reduce fiscal risks from state-owned enterprises, and improving the business environment to encourage growth led by the private sector.
To qualify for the program, Pakistan imposed from Rs1.4 trillion to Rs1.8 trillion in additional taxes, increased electricity prices by up to 51% and committed to bringing transparency to the affairs of the Sovereign Wealth Fund. The government also took Pakistan’s history’s most expensive loan of $600 million to win a board meeting date from the IMF.
Historically, Pakistan has relied heavily on IMF programs to navigate financial turmoil, often coming close to sovereign default. In recent years, the country has sought financial assistance not only from the IMF but also from its regional allies to meet external financing targets.
The approval of this loan program is expected to provide Pakistan with the necessary funds to implement key economic reforms and stabilize its fiscal situation. The government is hopeful that with this financial backing, it can work towards achieving long-term economic stability and reduce its reliance on external assistance in the future.
Finance Ministry officials said that Pakistan has to repay $100 billion in debt over the next four years. Additionally, loans from friendly countries will need to be rolled over annually, while additional external financing of $5 billion is projected to be required within the next three years.
To meet the stringent demands of the IMF program, Pakistan will need to gradually raise its tax-to-GDP ratio by 3% over the same period. Sectors such as retail, wholesale, exports, and agriculture are expected to be brought under the tax net, as the government looks to increase revenues.
