The International Monetary Fund (IMF) Executive Board has completed the second review under the Stand-By Arrangement (SBA) for Pakistan on Monday, paving the way for an immediate disbursement of approximately $1.1 billion. This brings the total disbursements under the arrangement to about $3 billion.
The inflow of funds is expected to bolster the reserves held by the State Bank of Pakistan (SBP) to nearly $9 billion. As of April 19, the foreign currency reserves held by the SBP stood at $7.981 billion. In a statement, the IMF noted that Pakistan’s 9-month SBA, approved by the Executive Board on July 12, 2023, has provided a policy anchor to address domestic and external imbalances. It has also provided a framework for financial support from multilateral and bilateral partners.
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The program has focused on several key areas:
- Fiscal adjustment and maintenance of debt sustainability through the implementation of the FY24 budget.
- Protection of critical social spending.
- Buffering external shocks and eliminating foreign exchange shortages by restoring proper foreign exchange market functioning.
- Progress on disinflation through maintaining a tight monetary policy.
- Advancing structural reforms, particularly in the energy sector viability, state-owned enterprise governance, and climate resilience.
The IMF stated that macroeconomic conditions have improved during the course of the program. Growth of 2 percent is expected in FY24, with a continued recovery in the second half of the fiscal year. The fiscal position has strengthened, with a primary surplus of 1.8 percent of GDP achieved in the first half of fiscal year 2024, surpassing projections.
Inflation, although still elevated, is on a declining trajectory and is expected to reach around 20 percent by the end of June. Assuming continued sound policies and reform efforts, inflation should return to the State Bank of Pakistan’s target, with growth continuing to strengthen over the medium term.
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Gross reserves have increased to around $8 billion, up from $4.5 billion at the start of the program, and are projected to continue being rebuilt over the medium term.
Following the Executive Board discussion, Antoinette Sayeh, Deputy Managing Director and Chair, emphasized the need for Pakistan to capitalize on the achieved stability by persisting with sound macroeconomic policies and structural reforms to foster stronger, inclusive, and sustainable growth. Continued external support will also be critical in this endeavor.
Key priorities going forward include revenue mobilization efforts, fiscal sustainability, reform of state-owned enterprises, strengthening governance and anti-corruption institutions, and building climate resilience. Additionally, continued vigilance over the financial sector and addressing undercapitalized financial institutions are deemed essential for ensuring financial stability and long-term inclusive growth.
