IMF says ‘significant progress’ made in talks with Pakistan on new bailout package

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The IMF has said that “significant progress” has been achieved during talks with Pakistani officials towards reaching a staff-level agreement for an extended fund facility for the cash-strapped country. Pakistan has made a formal request for a fresh bailout package between USD 6 and USD 8 billion under the EFF, with the possibility of being augmented through climate finance. If successful, it would be the 24th International Monetary Fund (IMF) bailout programme for the country.

An IMF team led by Nathan Porter, the IMF’s Mission Chief to Pakistan, visited Islamabad between May 13 and May 23 to discuss the country’s plans for a home-grown economic programme that can be supported under the IMF’s Extended Fund Facility. The visit was undertaken on Islamabad’s request. The global lender has emphasised that prioritising reforms to revitalise the Pakistani economy outweighs the size of the new loan package being negotiated.

“The mission and the authorities will continue policy discussions virtually over the coming days aiming to finalise discussions, including the financial support needed to underpin the authorities’ reform efforts from the IMF and Pakistan’s bilateral and multilateral partners,” Porter said in a statement. Ahead of the discussions, the IMF had warned that downside risks for the Pakistani economy remained exceptionally high.

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The official said that building on the economic stabilisation achieved through the successful completion of the 2023 Stand-by Arrangement, the global lender and the Pakistani authorities made “significant progress” toward reaching a Staff Level Agreement (SLA) on a comprehensive economic policy and reform programme that can be supported under an EFF.

“The authorities’ reform programme aims to move Pakistan from economic stabilisation to strong, inclusive, and resilient growth. To achieve this, the authorities plan to continue to strengthen public finances to reduce vulnerabilities by improving domestic revenue mobilisation through fairer taxation while scaling up spending for human capital, social protection, and climate resilience; secure energy sector viability, including reforms to reduce the high cost of energy; continue progress towards low and stable inflation by appropriate monetary and exchange rate policies; improve public service provision through state-owned enterprise (SOE) restructuring and privatisation; and promote private sector development, by securing a level-playing field for investment and stronger governance,” the statement said.

Shortly after the statement’s release, the Pakistan Stock Exchange (PSX) gained 556.5 points to stand at 75,670.97 points at 9:41 am on Friday from the previous close of 75,114.47. The Washington-based lender opened discussions with Pakistan on a new loan programme after the cash-strapped country last month completed a short-term USD 3 billion programme, which helped stave off a sovereign debt default. Ahead of the discussions, the IMF had earlier this month warned that downside risks for the Pakistani economy remained exceptionally high.

Pakistan narrowly averted default last summer, and the economy has stabilised after the completion of the last IMF programme, with inflation coming down to around 17 per cent in April from a record high of 38 per cent last May. The country is still dealing with a high fiscal shortfall, and while the external account deficit has been controlled through import control mechanisms, it has come at the expense of stagnating growth, which is expected to be around two per cent this year compared to negative growth last year.