The International Monetary Fund (IMF) Executive Board is tentatively set to approve the Staff-Level Agreement (SLA) with Pakistan on December 7, paving the way for the first review of the $3 billion Stand-By Arrangement (SBA) and the disbursement of approximately $700 million on December 8.
As per the end-of-mission statement from the IMF, the Staff-Level Agreement between the IMF staff and Pakistani authorities was reached on November 15 in Islamabad. This agreement allows Pakistan access to SDR 528 million (around $700 million), bringing the total disbursements under the nine-month $3 billion SBA to nearly $1.9 billion.
Following this, Caretaker Finance Minister Dr. Shamshad Akhtar announced the postponement of a $1.5 billion Eurobond launch due to unfavorable global financial conditions. The minister also committed to ongoing adjustments in electricity and gas rates to prevent the further accumulation of circular debt.
The IMF mission urged authorities to return to a market-determined exchange rate and highlighted potential risks stemming from geopolitical tensions, rising commodity prices, and challenging global financial conditions. The IMF advised continued efforts to enhance resilience, emphasizing the importance of timely disbursement of external support to support the government’s policy and reform initiatives.
The quarterly review with the IMF was notably smooth this time, culminating in the immediate announcement of the SLA, as most quantitative targets were met. The SBA was initially signed in July, with an upfront disbursement of about $1.2 billion.
The agreement supports Pakistan’s commitment to advancing fiscal consolidation, implementing cost-reducing reforms in the energy sector, adopting a market-determined exchange rate, and pursuing reforms in state-owned enterprises and governance to attract investment and promote job creation. The IMF acknowledged a nascent recovery underway, attributed to international support and improved confidence.
While inflation is expected to decelerate in the coming months, the IMF cautioned that Pakistan remains vulnerable to external risks, including geopolitical tensions, commodity price fluctuations, and tightening global financial conditions. The IMF stressed the importance of macroeconomic sustainability and balanced growth, emphasizing continued fiscal consolidation to reduce public debt while protecting development needs.
Both sides agreed on additional reforms to reduce costs in the energy sector and restore its viability. Immediate actions were deemed critical to address circular debt issues, including power tariff adjustments pending since July 2023 and increased gas prices effective November 1, 2023.
The IMF acknowledged the substantial nature of these tariff increases but deemed them necessary to prevent further arrears that could jeopardize the viability of the energy sectors. The authorities are also taking steps to tackle cost-side pressures, such as bringing private sector participation to Discos, institutionalizing recovery and anti-theft actions, improving Power Purchase Agreement (PPA) terms, and reducing incentives for captive power.
The IMF reiterated the need to return to a market-determined exchange rate promptly and rebuild foreign exchange reserves. While acknowledging recent inflows, the IMF emphasized that a market-determined rupee is essential to sustainably alleviate external pressures and rebuild reserves.
