IMF extends $6 billion 3-year bail-out package for Pakistan
13 May 2019
The International Monetary Fund (IMF) will provide a bail-out package for Pakistan, under which the country will get $6 billion in loans over the next three years to meet its foreign debt obligations, the country's financial advisor said on state television, after signing the agreement.
The extended fund facility aims at helping the country stave off a potential balance-of-payments crisis.
Pakistan's foreign loans have exceeded $90 billion, mostly from loans under the China Pakistan Economic Corridor, while its exports have registered a negative growth over the past five years.
"So Pakistan will get $6 billion from the IMF, and in addition we will get $2 to $3 billion from the World Bank and Asian Development Bank in the next three years," said Abdul Hafeez Shaikh during the broadcast.
"The trade deficit reached $20 billion and our foreign exchange reserves have dipped by 50 per cent in past two years. So we have a $12 billion gap in our annual payments and we don't have the capacity to pay them," he added.
The IMF said it has reached a $6 billion Extended Fund Facility arrangement with Pakistan that will support a strategy for stronger and more inclusive growth by reducing domestic and external imbalances, removing impediments to growth, increasing transparency, and strengthening social spending.
The 39-month Extended Fund Facility will support Pakistan’s ambitious structural reform agenda that will supplement economic policies to rekindle economic growth and improve living standards.
IMF said the financing support from international partners will be critical to support Pakistani authorities’ adjustment efforts and ensure that the medium-term programme objectives can be achieved.
“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 $6 billion. This agreement is subject to 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,” IMF mission head Ernesto Rigo stated after signing the agreement on Saturday.
“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, the IMF noted, has been brought about by uneven and procyclical economic policies aimed at boosting growth, but at the expense of rising vulnerabilities and lingering structural and institutional weaknesses.
“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, a comprehensive plan for cost-recovery in the energy sectors and state-owned enterprises will help eliminate or reduce the quasi-fiscal deficit that drains scarce government resources,” it added.
Pakistan, in its 2019-20 budget, will aim at 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 as the first step.
The State Bank of Pakistan will focus on reducing inflation, which disproportionately affects the poor, and safeguarding financial stability.
“An ambitious structural reform agenda will 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,” IMF stated in a release.