Pakistan secures $7 billion IMF aid package to beat economic challenges

IMF aid for Pakistan: Pakistan and the International Monetary Fund (IMF) have reached an agreement on a $7 billion aid package to be disbursed over more than three years, aimed at addressing the country’s ongoing economic challenges.

“Building on the economic stability achieved under the 2023 Stand-by Arrangement (SBA), IMF staff and the Pakistani authorities have reached a staff-level agreement on a 37-month Extended Fund Facility Arrangement (EFF) of about $7 billion,” the IMF announced in a statement, confirming the deal, which is pending approval by the IMF's Executive Board.

The Washington-based IMF stated that the new program aims to support Pakistan’s efforts to solidify macroeconomic stability and foster stronger, more inclusive, and resilient growth. The program includes measures to enhance fiscal and monetary policies, broaden the tax base, improve the management of State-Owned Enterprises (SOEs), boost competition, ensure a level playing field for investment, enhance human capital, and expand social protection through the Benazir Income Support Programme (BISP).

The IMF also emphasised that sustained financial support from Pakistan’s development and bilateral partners is essential for the program’s success. 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.

According to the IMF, the new program builds on the macroeconomic stability achieved in the past year and aims to further strengthen public finances, reduce inflation, rebuild external buffers, and eliminate economic distortions to stimulate private sector-led growth.

Under the agreement, Pakistan has committed to increasing tax revenues by 1.5 per cent of GDP in FY25 and by 3 per cent of GDP over the duration of the program. Revenue collection will be bolstered through simpler and fairer direct and indirect taxation, including bringing net income from the retail, export, and agriculture sectors into the tax system.

The statement also highlighted that both federal and provincial governments have agreed to re-balance spending activities. Provinces will also take steps to enhance their tax-collection efforts, particularly in sales tax on services and agricultural income tax.

This agreement marks Pakistan's latest appeal to the IMF for financial assistance to support its economy and manage its debt obligations through substantial bailouts. 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 stated that the government plans to seek a long-term loan to stabilize the economy after the conclusion of the current bailout package.

The deal was announced shortly after Pakistan approved a tax-heavy budget for the 2024-25 fiscal year, aligning with IMF requirements. Analysts note that the new budget of approximately $68 billion, up from $50 billion in the previous fiscal year, aims to secure a long-term IMF loan of $6 billion to $8 billion to stabilize the economy. Pakistan nearly defaulted on its foreign debt payments in 2023.

(With PTI inputs)