ISLAMABAD: Finance Minister Muhammad Aurangzeb on Saturday said that
Pakistan will achieve macroeconomic stability with the help of a newly signed
agreement with the International Monetary Fund (IMF).
The minister’s remarks come a day after the cash-strapped nation reached a three-
year, $7 billion aid package deal with the global lender, giving much-needed
respite to the struggling economy.
“We need to ensure structural reforms and bring self-sustainability in areas of
public finance, energy, and state-owned institutions,” said Aurangzeb who hopes to
achieve them in the next few years.
The new loan program, 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,” the IMF said while
announcing the deal.
Faced with chronic mismanagement, Pakistan’s economy has found itself on the
brink, challenged by the COVID-19 pandemic, the effects of the war in Ukraine
and supply difficulties that fuelled inflation, as well as record flooding that
affected a third of the country in 2022.
With its foreign currency reserves dwindling, the cash-strapped nation found itself
in a debt crisis and was forced to turn to the IMF, obtaining its first emergency
loan in the summer of 2023.
The latest bailout, coming to Pakistan in the form of loans, follows a commitment
by the government to implement reforms, including a major effort to broaden the
country’s tax base.
In a nation of over 240 million people and where most jobs are in the informal
sector, only 5.2 million filed income tax returns in 2022.
During the 2024-25 fiscal year which starts July 1, the government aims to raise
nearly $46 billion in taxes, a 40% increase from the previous year.
As part of the push, the Federal Board of Revenue (FBR) blocked 210,000 SIM
cards of users who have not filed tax returns to widen the revenue bracket earlier
this month.
Pakistan initiated discussions with the lender for the new multi-billion dollar loan
agreement — its 24th bailout in more than six decades — to support its economic
reform program.
While around 40% of the population already lives below the poverty line, the
World Bank said in April it feared that 10 million additional Pakistanis would fall
below this threshold.
Islamabad also aims to reduce its fiscal deficit by 1.5% to 5.9% 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 the 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 2% growth this year, with inflation still expected to
reach nearly 25% year-on-year, before gradually coming down in 2025 and 2026.