Pakistan's economic risks ‘exceptionally high’, IMF report says

Beyond the upcoming election cycle and the current standby agreement, Pakistan needs another International Monetary Fund (IMF) program and assistance from other multilateral lenders, the lender stated in a report released on Tuesday, according to Dawn.

“Resolving Pakistan’s structural challenges, including long-term BOP [balance of payments] pressures, will require continued adjustment and creditor support beyond the current programme period,” the Fund said in a 120-page report analysing Pakistan’s macroeconomic outlook.

The report is based on the Memorandum of Economic and Fiscal Policies (MEFP) signed by Finance Minister Ishaq Dar and State Bank Governor Jameel Ahmed, Dawn reported.

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Dawn is one of the Pakistan dailies that reports on Social, Political, Economical issues in the country.

“A possible successor arrangement could help anchor the policy adjustment needed to restore Pakistan’s medium-term viability and capacity to repay,” the report said.

‘Challenges complex’

The IMF assessment noted that Pakistan’s economic challenges were complex and multifaceted, and risks were exceptionally high.

“Addressing them requires steadfast implementation of agreed policies, as well as continued financial support from external partners. Consistent and decisive implementation of programme agreements will be essential to reduce risks and maintain macroeconomic stability,” it said.

The lender insists that one more IMF program will be necessary to solve structural issues. The government has agreed to notify the public as soon as electricity rates increase by 5 Pakistan Rupees (PKR) per unit and gas prices increase by more than 40 per cent, according to the report. This is because the circular debt in the gas sector is now competing with losses in the power sector, according to Dawn.

The government has promised renegotiation of power-purchase agreements with remaining power producers (including Chinese) or prolonging their debt servicing tenors, Dawn reported.

In the gas sector, the government has committed to immediate notification of gas tariff adjustments determined by Ogra, besides merging the gas rates for both local and imported natural gas through a weighted average tariff.

The government has also given an undertaking to ringfence fiscal programme as envisaged in the recent budget and other commitments with the IMF.

For this, the government will not allow supplementary grants for any additional unbudgeted spending over the parliamentary approved level in the current fiscal year, at least until the formation of a new government after the elections (except in case of a severe natural disaster).

The government has also given a “commitment not to launch any new tax amnesties or grant further any new tax exemptions in 2023-24 including through the budget or statutory regulatory orders without prior [assembly] approval”.

The government has also provided agreements with each province on their commitment to achieving an end-FY24 fiscal position consistent with the fiscal year’s general government primary balance goal of PKR 401 billion and continuing focus on critically urgent energy sector policies, including not to introduce any fuel subsidy, or cross-subsidy scheme, in FY23 and beyond, Dawn reported.

In addition, the government has committed to ensuring monetary and financial stability by returning to a market-determined exchange rate, lowering inflation toward the target, and rebuilding foreign exchange reserves.

It said the authorities would refrain from providing guidance or expressing a preference to market participants regarding the exchange rate or regulating demand for forex through administrative action, Dawn reported.

If the proper market functioning is restored, the authorities have committed to maintaining the average premium between the interbank and open market rates at no more than 1.25 per cent and no less than minus 1.25 per cent during any consecutive five business day-period and publish daily interbank and open market exchange rates.

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