The International Monetary Fund (IMF) and the Pakistan government have reached a staff-level agreement for the revival of the $6 billion Extended Fund Facility (EFF) which has been stalled due to the pending review since April this year, the global lender said on Monday. The agreement, if approved by the IMF’s Executive Board, would allow Islamabad to withdraw around $1 billion from the package under Special Drawing Rights (SDR). 

The understanding has been reached after lengthy negotiations, spanned over 45 days, and would bring relief to the country’s economy. The IMF also acknowledged the country’s progress in implementing the program under “a difficult environment.” After withdrawing the next tranche, the total disbursed amount would cross $3 billion, the IMF said in the statement. 

For months now, the IMF had been asking for structural reforms in the power and other sectors. The government implemented all measures prescribed under the program in power sectors, the IMF noted in the statement. However, the government is yet to implement all measures regarding the budget deficit.

While acknowledging the progress in the anti-money laundering laws and countering the financing of terrorism, the IMF stressed strengthening the implementation of these measures. 

Noting the rebound in the economy, the global lender flagged the growing external pressure  due to the widening of the current account deficit and depreciation pressures on the exchange rate.” The monetary policy needs to remain focused on curbing inflation, preserving exchange rate flexibility, and strengthening international reserves, it said.

It further added, "On the fiscal policy front, staying on course on achieving small primary surpluses remains critical to reducing high public debt and fiscal vulnerabilities. Continued efforts to broaden the tax base by removing remaining preferential tax treatments and exemptions will help generate much-needed resources to scale up critical social and development spending."

After the recently passed SBP Amendments Act, which was a key step for the progress, IMF noted that the central bank should gradually advance the preparatory work to formally adopt an inflation targeting regime in the medium term, underpinned by a forward-looking and interest-rate-focused operational framework. 

(SAM)