Pakistan: IMF Reaches Staff-Level Agreement

The Pakistani authorities and the IMF have reached a staff-level agreement on a 37-month Extended Fund Arrangement (EFF) worth approximately US$7 billion, pending approval by the IMF's Executive Board and confirmation of necessary financing from Pakistan’s development and bilateral partners. (12 July 2024)

The program aims to build on last year's macroeconomic stability by strengthening public finances, reducing inflation, rebuilding external buffers, and removing economic distortions to encourage private sector growth. Key policy goals include:

• Sustainable Public Finances: Gradual fiscal consolidation through tax reforms and increased resources for development and social spending. FY25 budget aims for a 1% GDP primary surplus, supported by fairer taxation and expanded social protection.
• Federal-Provincial Fiscal Balance: A National Fiscal Pact reallocates spending responsibilities, enhancing provincial tax efforts, including harmonized agricultural income tax starting January 1, 2025.
• Inflation and Financial Stability: Focused monetary policy to support disinflation, flexible exchange rate maintenance, and measures to deepen financing access while strengthening financial institutions.
• Energy Sector Viability: Timely energy tariff adjustments, cost-reducing reforms, targeted subsidy reforms, and avoiding unnecessary generation capacity expansion.
• Private Sector and Export Growth: Improving the business environment, enhancing SOE management, privatization, and removing state distortions. Advancing anti-corruption, governance, transparency reforms, and gradual trade policy liberalization.

IMF Statement on Pakistan 12 July 2024

Recent History of IMF Agreements with Pakistan

Pakistan: Among the Highest IMF Loan Recipients but with the Lowest Debt-to-GDP Ratio

Pakistan is among the highest recipients of IMF loans. However, it is important to note that Pakistan's IMF debt as a percentage of its GDP is the lowest among comparable countries.

The top three recipients all have larger economies than Pakistan and a debt-to-GDP ratio of more than 3%, whereas Pakistan's ratio is less than 2%.

Debt-to-GDP ratio is a measure used to assess a country's ability to pay back its debt relative to the size of its economy. A lower ratio generally indicates that a country is managing its debt more effectively compared to its economic output.

For a broader meaningful comparison, it is essential to exclude Argentina and Ukraine, as they are special cases due to their unique economic and political circumstances. Additionally, smaller African countries should be left out of the comparison because their economic contexts differ significantly. (IMF data)

This leaves Egypt as the most relevant country for comparison. Egypt, like Pakistan, has a geopolitically strategic location and a large, growing population. Both countries have histories of hybrid or dictatorial regimes, face perennial foreign exchange issues, experience significant income disparity, and have large public sectors. These similarities provide a useful basis for understanding Pakistan's economic situation in relation to other nations that receive substantial IMF assistance.

Additionally, Pakistan's actual GDP may be larger than officially reported. A substantial portion of the economy operates in the informal sector, which is not captured in official statistics. Estimates suggest that the undocumented economy could account for over 35% of Pakistan’s total GDP​ (Informal Economy Accounts for Over 35% of Pakistan’s GDP, NA Informed)​. This unrecorded economic activity implies that the real debt-to-GDP ratio could be even lower, further emphasizing Pakistan's fiscal resilience and potential for sustainable debt management.

See the Frequently Asked Questions on Pakistan (IMF)

Recent history of IMF and its Agreements with Pakistan

The International Monetary Fund has made several agreements with Pakistan over the years. Here's a brief on the latest ones.

The current, Extended Fund Facility (EFF) Arrangement (2019-2023): The IMF approved this program in July 2019. It gives Pakistan $6 billion in financial assistance. The goal is to support Pakistan's economic reform program and help with the country's balance of payments problems.