Pakistan, IMF reach agreement on $6 billion extended fund facility loan

The International Monetary Fund (IMF) has said that it had reached a staff-level agreement with Pakistan on the combined seventh and eighth reviews for a USD 6 billion Extended Fund Facility (EFF) loan facility.

"The immediate priority is to stabilize the economy through the steadfast implementation of the recently approved budget for FY23, continued adherence to a market-determined exchange rate, and a proactive and prudent monetary policy," a statement issued by the IMF said.

"It is important to expand social safety to protect the most vulnerable, and accelerate structural reforms including to improve the performance of state-owned enterprises (SOEs) and governance," it added.

The discussion was finalized by an IMF team led by Nathan Porter and the agreement is subject to approval by the IMF's Executive Board.

"About USD 1,177 million (SDR 894 million) will become available, bringing total disbursements under the program to about USD 4.2 billion," Porter said through the statement.

The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries' official reserves.

"Pakistan is at a challenging economic juncture. A difficult external environment combined with procyclical domestic policies fueled domestic demand to unsustainable levels. The resultant economic overheating led to large fiscal and external deficits in FY22, contributed to rising inflation, and eroded reserve buffers," it read.

An extension of the EFF until the end of June 2023 and an augmentation of access by SDR 720 million bringing the total access to about US$7 billion will be considered by the IMF board in order to support program implementation and meet the higher financing needs in FY23, as well as catalyze additional financing.

The implementation of the outlined policies will help create the conditions for sustainable and more inclusive growth.

Due to the existing elevated uncertainty in the global economy and financial markets, the IMF staff wants the Pakistani authorities stand ready to take any additional measures necessary to meet the objectives of the program.

"The agreement with the Fund has set the stage to bring [the] country out of economic difficulties," Prime Minister Shehbaz Sharif said as quoted by the Dawn newspaper.

On the fiscal side, there have been deviations from the policies agreed upon in the last review, partly reflecting the fuel and power subsidies announced by the authorities in February. The team emphasized the urgency of concrete policy actions, including in the context of removing fuel and energy subsidies and the fiscal year 2023 budget, to achieve program objectives.

The IMF team is looking forward to continuing its dialogue and close engagement with Pakistan's government on policies to ensure macroeconomic stability for the benefit of all of Pakistan's citizens, reported Business Recorder.