The technical teams of the government and the International Monetary Fund (IMF) have reached an agreement on a bailout package for Pakistan, Adviser to Prime Minister on Finance, Revenue and Economic Affairs Dr Abdul Hafeez Shaikh announced on Sunday.
“After months of discussions and negotiations, a staff-level agreement has been reached between Pakistan and the IMF,” he said while speaking on state-run PTV News.
Dr Shaikh revealed that Pakistan would receive $6 billion worth of assistance under the IMF programme over a period of three years.
He said the staff-level agreement, which must still be approved by the IMF board of directors in Washington, would show that effective reforms were underway in Pakistan.
“The Pakistani authorities and the IMF team have reached a staff level agreement on economic policies that could be supported by a 39-month Extended Fund Arrangement (EFF) for about US $6 billion,” an IMF press release quoted IMF Mission Chief for Pakistan Ernesto Ramirez Rigo as saying.
Dr Shaikh said IMF is an international institution whose primary job is to assist member countries who are in an “economic difficulty”. He said the government could not have bridged the financing gap of $12 billion on its own that he said was created by a weak economy.
Besides the IMF assistance, Pakistan will also receive additional funds worth nearly $2-3 billion from institutions like the World Bank and Asian Development Bank, the adviser revealed.
Asked whether this would be Pakistan’s last IMF programme, Dr Shaikh said: “It depends on how successfully we as a country implement this programme and approach it as a reform or structural change programme instead of a mere revenue-earning programme.”
Decisive reforms necessary: IMF
The facility aims to support Pakistani authorities’ “strategy for stronger and more inclusive growth by reducing domestic and external imbalances, removing impediments to growth, increasing transparency, and strengthening social spending”, the IMF statement said.
It said financing support from Pakistan’s international partners will be “critical to support the authorities’ adjustment efforts and ensure that the medium-term programme objectives can be achieved”.
Rigo in his statement added: “Pakistan is facing a challenging economic environment, with lacklustre growth, elevated inflation, high indebtedness, and a weak external position. […] The authorities recognise the need to address these challenges, as well as to tackle the large informality in the economy, the low spending in human capital, and poverty. In this regard, the government has already initiated a difficult, but necessary, adjustment to stabilise the economy, including thorough support from the State Bank of Pakistan. These efforts need to be strengthened.
“Decisive policies and reforms, together with significant external financing are necessary to reduce vulnerabilities faster, increase confidence, and put the economy back on a sustainable growth path, with stronger private sector activity and job creation.”
The IMF mission chief emphasised that in addition to the EFF, “a comprehensive plan for cost-recovery in the energy sectors and state-owned enterprises will help eliminate or reduce the quasi-fiscal deficit that drains scarce government resources”.
Lengthy bailout talks
Islamabad and a visiting IMF mission had kicked off technical level talks on April 29 to sort out details of the proposed bailout package over the next 10 days. The two sides were scheduled to conclude a staff-level agreement on Friday, but the talks were extended into the weekend, with the finance ministry reporting “good progress” in the discussions.
The finance ministry had approached the IMF in August 2018 for a bailout package, whereas last month, the then finance minister Asad Umar announced that the two sides had — more or less — reached an understanding on a package for bailing out the country’s ailing economy.
“In the next step, the IMF will send its mission to Pakistan in the next few weeks to work out technical details. But in principle, we have reached an agreement,” he had said. However, Umar was removed from the post in a dramatic move and was replaced with Dr Shaikh — an internationally renowned economist.
Dr Shaikh served as the finance minister from 2010 to 2013 during the PPP government’s rule. During his tenure as federal minister, Dr Shaikh completed 34 sale transactions worth Rs300 billion in banking, telecom, electricity, and manufacturing.
Subsequently, an IMF employee Dr Reza Baqir was appointed governor of the State Bank of Pakistan (SBP) to serve for a three-year term. The Chairman Federal Board of Revenue was also changed in a sudden move.