Pakistan and IMF make strides toward extended fund facility agreement

In a significant development, Pakistan and the International Monetary Fund (IMF) have made substantial progress towards securing a staff-level agreement for an extended fund facility (EFF), the IMF announced on Friday. This positive news triggered a notable surge in the Pakistan Stock Exchange (PSX), which jumped 556.5 points to 75,670.97 at 9:41 AM, up from the previous close of 75,114.47.

New loan programme discussions

Following the completion of a short-term $3 billion programme last month, which averted a sovereign debt default, the IMF has initiated discussions with Pakistan on a new loan programme. An IMF delegation, led by mission chief Nathan Porter, concluded talks with Pakistani officials on Thursday, after arriving in Islamabad on May 13.

Ongoing policy discussions

“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 stated.

The reform programme is designed to transition Pakistan from economic stabilisation to robust, inclusive, and resilient growth. Key areas of focus include strengthening public finances through improved domestic revenue mobilisation, fairer taxation, and increased spending on human capital, social protection, and climate resilience.

Energy sector and economic reforms

The Pakistani authorities are also committed to securing energy sector viability by implementing reforms to reduce high energy costs. The agenda includes maintaining low and stable inflation through appropriate monetary and exchange rate policies, enhancing public service provision via state-owned enterprise restructuring and privatisation, and fostering private sector development by ensuring a level playing field for investment and stronger governance.

Fruitful discussions and financial support

Porter described the discussions as “fruitful,” highlighting the continuation of virtual policy talks to finalise the necessary financial support for Pakistan’s reform initiatives. The IMF stressed that the focus on reforms to revitalise Pakistan’s economy is more critical than the size of the new loan package.

Seeking additional financing

Pakistan is expected to request at least $6 billion under the new EFF programme and seek further financing from the IMF’s Resilience and Sustainability Trust.

Economic risks and prioritising reforms

Earlier this month, the IMF cautioned that downside risks for Pakistan’s economy remain exceptionally high, emphasising the importance of prioritising reforms to achieve economic revitalisation.

This ongoing collaboration between Pakistan and the IMF aims to address economic vulnerabilities and promote sustainable growth, providing a roadmap for the country’s financial stability and development.

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