ISLAMABAD: Pakistan has signed an agreement with the International Monetary Fund (IMF) to ensure that the average premium between the interbank and open markets during any five business days does not exceed 1.25 percent.
The IMF has also warned that Pakistan’s economic challenges are complex and multifaceted, requiring persistence on coherent policies and continued financial support from external partners.
It recommended consistent and decisive implementation of program agreements to mitigate risks and maintain macroeconomic stability.
The IMF on Tuesday released details of the MoU and commitments made with the $3 billion bailout package of the Government of Pakistan’s Standby Arrangement (SBA) programme.
In a major development, Pakistan also agreed with the IMF that forex sales would not be used to stem the rupee’s depreciation trend due to fundamentals.
Islamabad also pledged to increase the annual rebasing of electricity rates by the end of this month.
Pakistan also agreed with the IMF for the compilation and distribution of quarterly national accounts for the quarter (Q-1) of FY24 from the July-September period and for FY23 by the end of November 2023. Revised Annual Estimates.
Under the structural benchmark for securing the $3 billion bailout package for the SBA programme, the government agreed with the IMF to increase transparency and efficiency in the foreign exchange market. Will publish interbank and open market exchange rates, and a framework for monitoring and publishing developments and prices in the informal market.
“We will also expedite work to migrate to a new trading platform for spot transactions connecting all banks and we expect the system to go live by the end of December 2023.”
Interventions by the State Bank of Pakistan (SBP) will be in line with market conditions and objectives.
(i) bringing reserves to a more prudent level of at least $6.4 billion (1 month import coverage) by the end of December 2023; And
(ii) Reducing SBP’s net forward/swap position by $4 billion despite a challenging external environment.
(iii) To protect the integrity of the foreign exchange market, any abusive or anti-competitive behavior by market participants shall be remedied through the enforcement of relevant regulations and applicable laws.
Contrary to the statement issued by the Minister of State for Petroleum to break the flow of revolving credit in the gas sector, the IMF says that partially available data suggests that CD stocks in the gas sector (which (including petroleum and late payment fees) have also increased. grew rapidly and is now almost at par in the power sector.
“To give color to our financial program, the Pakistani authorities reiterated their commitment to:
(i) not allow supplementary grants for any additional non-budgetary expenditure at the Parliamentary approved level in FY24 at least until the formation of a new government after elections (except if required to respond to a severe natural calamity; );
(ii) our commitment not to introduce any new tax amnesty or grant any further tax exemptions in FY24, including through budget or statutory regulatory orders, without the prior approval of the National Assembly;
(iii) Our signing of MoUs with each province to achieve the FY24 ending fiscal position is consistent with the FY24 general government core balance target of PRs 401 billion.
(iv) our continued focus on critical energy sector policies; And
(v) Our commitment not to introduce any fuel subsidy, or cross-subsidy scheme in FY23 and beyond.”
“The FY24 budget drives fiscal consolidation through a primary surplus of PRs 401 billion (0.4 percent of GDP) – built on a set of credible measures that support:
(i) by targeting low-tax sectors (such as agriculture and construction) to sustainably raise additional revenue, broaden the tax base, and improve growth; And
(ii) curbing non-priority spending by creating fiscal space to maintain generous levels of Benazir Income Support Program (BISP) (including through energy sector initiatives aimed at energy sector subsidies, public wage bills; and includes pension). Sponsorship Program.”
“Like previous years, we are also working with the provinces to sign a memorandum of understanding (MoU) with the federal governments on their provincial fiscal targets in line with the FY24 budget.”
“The government has agreed with the IMF to improve state-owned enterprise (SOE) governance:
(i) operationalizing the recently passed SOE law into a policy that clarifies ownership arrangements and division of roles within federal governments; And
(ii) amending the Acts of the four selected SOEs to make the new SOEs legally applicable to these SOEs.”
“Pakistan has committed with the IMF to refrain from granting any further tax amnesties, new preferential tax treatment or exemptions to State-Owned Enterprises (SOEs) by the Central Monitoring Unit (CMU). has issued its first periodic report on its performance, using the latest available data, to the federal government by the end of December 2023.”
“Inflation adjustment of unconditional cash transfer (sponsorship) under BISP will be done by the end of January 2024 as per the structural benchmark agreed with the IMF.”
“The government has by the end of December 2023, as per IMF staff recommendations, submitted to Parliament amendments to bring Pakistan’s early intervention, bank resolution, and crisis management arrangements in line with international best practices. Agreed on.”
“The objective of the new SBA is to build confidence and strengthen stability. To reduce near-term uncertainties and risks, the new program aims to control budget and external deficits, bring inflation under control, exchange market focuses on restoring the proper functioning of the U.S., rebuilding reserve buffers, and advancing some critical reform efforts.”
“While the authorities have taken actions in these areas, they need to be sustained over the duration of the program if Pakistan is to regain stability and remain sustainable.”
The IMF said: “Success will depend on strong and sustainable ownership, strong implementation, and significant external financing, and will be underpinned by program monitoring. Thus, policies and monitoring should support external financing.” should, with a recovery in the FX market and strong policies supporting the recovery in remittances and other inflows (including FDI) in FY24.
The fiscal effort in the FY24 budget is an important step towards safeguarding fiscal stability, but further reforms are needed.
The stabilization envisioned in the FY24 budget is appropriate and is supported by measures to mobilize revenue and curb non-priority spending, along with safeguarding social assistance.
Tighter budget execution will be required to mitigate major risks to macroeconomic stability and financial stability, along with strong efforts to stimulate revenue through current expenditure restraint and improved tax administration.
Beyond FY24, efforts need to continue to build a more progressive, simple, efficient, and fair tax system that should create adequate space for significant growth and social spending, including for climate shocks. Building flexibility.
In this regard, better public financial management is crucial to improve the efficiency of scarce resources.
More targeted social spending is needed to effectively reduce poverty and increase social protection.
Staff welcomed the targeted expansion of BISP beneficiary base and continued inflation adjustment at the benefit level, but increased the generosity of BISP stipends and CCT schemes to all deserving families. He emphasized continuous efforts to ensure the enrollment of
“Monetary policy needs to be tight, proactive and data-driven.
The recent increase in policy rates is welcome, but tightening should continue if needed to moderate inflation and ease external balances.”
“In the short term, forward-looking real policy rates should return to positive territory to re-anchor expectations and achieve the SBP’s inflation objective over the medium term.”
“Implementing the plan to phase out refinancing schemes will strengthen the traction of monetary policy and bring transparency to these schemes. Avoiding informal influence in the market, including import management and approval of LCs. Through guidance, it is important to restore public confidence in the exchange rate system.”
