The International Monetary Fund (IMF) said Monday it had agreed with Pakistan on measures needed to revive a stalled $ 6 billion financing program for the South Asian country, which faces growing economic challenges.
Pakistani authorities and IMF staff have reached a staff-level agreement on the policies and reforms needed to complete the sixth review, the IMF said in a statement.
Pakistan had been in talks with the IMF for several months to seek relief on the terms and conditions of the package. Its government bonds jumped between 1.3 and 2.8 cents against the US dollar with the news of a deal and were on track for their best day in more than a year.
The agreement is subject to approval by the Executive Board, following the implementation of preliminary actions, especially in fiscal and institutional reforms, the IMF said.
Completion of the review, pending the beginning of this year, will make available 750 million IMF special withdrawal rights, or about $ 1 billion, bringing total disbursements so far to about $ 3 billion. said in the statement.
Pakistan will ensure the adoption of legislation on central bank autonomy, as agreed with the IMF, said finance adviser Shaukat Tarin, who is equal to the country’s finance minister.
God willing we will pass, he said. We believe that the state bank should be independent in monetary policy and the exchange rate.
The Pakistani government has a simple majority in parliament to pass the law.
Tarin also vowed to take four more actions as agreed before the fund board meets to consider whether to approve the final installment issue.
These actions are: the withdrawal of tax exemptions and subsidies, an increase in the oil tax, higher energy tariffs and an audit of about $ 1.4 billion in additional funds borrowed in Pakistan in April 2020 to help it cope with the pandemic. COVID-19.
They asked for it and we have to do it, Tarin said at a press conference, referring to the audit.
Pakistan entered the $ 6 billion 39-month financing program with the IMF in July 2019, but funding stalled earlier this year due to problems over required reforms.
Despite the difficult environment, progress continues to be made in implementing the program, the IMF said.
All quantitative performance criteria (PCs) for the end of June were met with wide margins, with the exception of that of the primary budget deficit, he said.
Pakistan has faced a historic currency devaluation, high inflation, a current account deficit and shrinking foreign exchange reserves, and talks between the government and the IMF had added to investors’ nerves.
This will lift [a] a lot of uncertainty, said a finance ministry spokesman about the deal with the fund.
The central bank last week warned that a higher-than-expected primary deficit is likely to worsen the inflation outlook and hurt economic recovery. It also raised the key interest rate by 150 basis points to 8.75 percent to counter inflationary pressures and maintain stability with growth.
Headline inflation had reached 9.2 per cent in October, up from 8.4 per cent two months earlier, the bank said.
The bank has also lifted the required cash reserve for commercial banks by one percentage point, the first such move in more than a decade, in another move to deal with accelerating inflation.
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