The International Monetary Fund (IMF), in a report released on Tuesday, warned that risks to Pakistan’s economy were “exceptionally high,” as it noted that the prevailing challenges were both complex and multifaceted.
The 120-page report, based on the Memorandum of Economic and Fiscal Policies (MEFP) signed with the IMF by Finance Minister Ishaq Dar and State Bank Governor Jameel Ahmed, stressed that addressing the challenges to the economy required “steadfast implementation” of agreed policies. Additionally, it said, the country would need continued financial support from external partners and “consistent and decisive implementation” of program agreements to reduce risks and maintain macroeconomic stability.
According to the report, Pakistan would need another IMF program immediately after the expiry of the stand-by arrangement (SBA), as well as support from other multilateral lenders beyond the coming election cycle. “Resolving Pakistan’s structural challenges, including long-term BOP [balance of payments] pressures, will require continued adjustment and creditor support beyond the current program period,” it said. “A possible successor arrangement could help anchor the policy adjustment needed to restore Pakistan’s medium-term viability and capacity to repay,” it added.
The report noted that the government had given an international undertaking to immediately notify a Rs. 5/unit increase in electricity rates and more than 40 percent increase in gas rates to overcome spiraling circular debts in both sectors. It said authorities had also committed to notify notification of quarterly and monthly power tariff adjustments without any delays and stand ready to take quick additional measures if set revenue targets were missed. The government, it said, has assured of renegotiating power-purchase agreements with all power producers or prolonging their debt servicing tenors.
For the gas sector, the government has committed to immediate notification of gas tariff adjustments determined by OGRA, as well as merging gas rates for both local and imported natural gas through a weighted average tariff. It has also given an undertaking to not make any alterations to the fiscal program envisaged in the federal budget and other commitments with the IMF. To achieve this, no supplementary grants would be allowed for any additional unbudgeted spending in the current fiscal year except in case of a severe natural disaster. Similarly, the government has committed to not launch any new tax amnesties or grant any new tax exemptions without parliamentary approval.
Similar to previous commitments, the government has provided agreements with each province to achieve a budgetary surplus at the end of the ongoing fiscal year, as well as pledging to not introduce any fuel subsidy, or cross-subsidy scheme. Authorities have also agreed to ensure monetary and financial stability through a market-determined exchange rate, lowering inflation, and rebuilding foreign exchange reserves to at least $6.4 billion. In this regard, the government must maintain the average premium between the interbank and open market rates at no more than 1.25% and no less than -1.25% over five consecutive business days.
Pakistan, in the MEFP, has also agreed to compile and make public quarterly National Accounts for the ongoing fiscal and revised annual estimates for the last fiscal by the end of November 2023. “We will also accelerate work for transitioning to a new trading platform for spot transactions connecting all banks and we expect the system to go live by end-December 2023,” it said. It also committed to raising additional revenue by targeting undertaxed sectors such as agriculture and construction, broadening the tax base, and improving progressivity, while restraining non-priority spending and protecting the Benazir Income Support Program (BISP).
For state-owned enterprises, the government has pledged to improve them by implementing a law clarifying ownership arrangements and the division of roles within the federal governments. Additionally, it has agreed to amend the acts of four selected SOEs to make the new law applicable on them.