Pakistan and the International Monetary Fund reached a three-year, $7 billion aid package deal, the Washington-based institution said on Friday.
The new programme, which needs to be validated by the Fund’s Executive Board, should enable Pakistan to “cement macroeconomic stability and create conditions for stronger, more inclusive and resilient growth,” according to a statement.
The agreement is subject to approval by the IMF’s executive board.
“The programme aims to capitalise on the hard-won macroeconomic stability achieved over the past year by furthering efforts to strengthen public finances, reduce inflation, rebuild external buffers and remove economic distortions to spur private sector-led growth,” the IMF statement said, quoting Nathan Porter, the Fund’s mission chief to Pakistan.
“In this regard, the authorities plan to increase tax revenues through measures of 1.5 per cent of GDP in FY25 and 3 per cent of GDP over the programme,” it said. The increase in revenue collections will be achieved through “simpler and fairer direct and indirect taxation, including by bringing net income from the retail, export, and agriculture sectors properly into the tax system”.
The statement added that federal and provincial governments have agreed to rebalance spending activities in line with the 18th Constitution Amendment by signing a ‘National Fiscal Pact’. Under the agreement, subjects including education spending, health, social protection, and regional public infrastructure investment will be devolved to provinces.
The provinces have already committed to “fully harmonising their Agriculture Income Tax regimes through legislative changes” with the federal and corporate income tax regimes. The move will be implemented from Jan 1, 2025.
The government will also improve the power sector’s viability and minimise its losses through timely tariff adjustment, reforms, and refraining from further unnecessary expansion of generation capacity.
“The authorities remain committed to undertaking targeted subsidy reforms and replace cross-subsidies to households with direct and targeted BISP support.”
Islamabad also aims to reduce its fiscal deficit by 1.5 percent to 5.9 percent in the coming year, heeding another key IMF demand.
The last loan — a nine-month $3 billion IMF deal — proved a lifeline.
But it came on condition of unpopular austerity measures, including an end to subsidies cushioning consumer costs.
In recent months, the current account balance has recovered slightly, high inflation is just starting to come down, but Pakistan’s foreign debt remains very high at $242 billion.
Servicing it will still swallow up half of the government’s income in 2024, according to the IMF.
The Fund also anticipates two percent growth this year, with inflation still expected to reach nearly 25 percent year-on-year, before gradually coming down in 2025 and 2026.
With additional input from AFP
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