ISLAMABAD: Pakistan has reached a staff-level agreement with the International Monetary Fund (IMF) for a new $7 billion loan program, the IMF said on Friday, the country’s latest move to turn to the global lender for assistance in keeping its fragile economy afloat.
Pakistan completed a short-term $3 billion IMF program in April this year, with the release of a final tranche of $1.1 billion. The facility helped Islamabad avert a default last year. Pakistan’s Finance Minister Muhammad Aurangzeb said his government planned to seek a longer-term loan from the IMF to help stabilize the $350 billion economy after the end of the last program.
The IMF said the new loan deal, which will span 37 months, was aimed at strengthening fiscal and monetary policy as well as reforms to broaden the tax base, improve management of state-owned enterprises, strengthen competition, secure investment, enhance human capital, and scale up social protection through increased generosity and coverage in major welfare programs.
“The program aims to capitalize 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,” IMF’s mission chief to Pakistan Nathan Porter said in a statement.
The deal, which is subject to approval by the IMF executive board, came after the government of Prime Minister Shehbaz Sharif presented its first budget in parliament last month, promising an increase of up to 25 percent in salaries of government employees and setting an ambitious tax collection target.
The finance minister said Pakistan wanted to collect Rs13 trillion ($44 billion) in taxes, which would be 40 percent more than the last fiscal year’s. He said the government would ensure an increase in the number of taxpayers the country from the existing 5 million people who paid taxes in Pakistan.
Analysts said the new budget of about $68 billion, up from $50 billion in the last year, was likely to land a longer-term IMF bailout of up to $8 billion to help stabilize the economy.
Pakistan reaches new $7 billion loan deal with IMF, says lender
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Pakistan reaches new $7 billion loan deal with IMF, says lender
- The new loan deal, which will last for 37 months, is aimed at strengthening fiscal and monetary policy as well as reforms
- The program aims to capitalize on the hard-won macroeconomic stability achieved over the past year, says IMF’s mission chief
Pakistan finance chief calls for change to population-based revenue-sharing formula
- Muhammad Aurangzeb criticizes current NFC formula, says it is holding back development
- Minister says Pakistan to repay $1.3 billion debt in April as economic indicators improve
ISLAMABAD: Pakistan’s Finance Minister Muhammad Aurangzeb said on Saturday the country’s revenue-sharing formula between the federal and provincial governments “has to change,” arguing that allocating the bulk of funds on the basis of population was holding back long-term development.
The revenue-sharing is done under the National Finance Commission (NFC) Award that determines how federally collected taxes are divided between the center and the provinces. Under the current formula, much of the distribution weight is based on population, with smaller weightages assigned to factors such as poverty, revenue generation and inverse population density.
“Under the NFC award, 82 percent allocation is done on the basis of population,” Aurangzeb said while addressing the Federation of Pakistan Chambers of Commerce & Industry’s regional office in Lahore. “This has to change. This is one area which is going to hold us back from realizing the full potential of this country.”
Economists and policy analysts have long suggested broadening the NFC criteria to give greater weight to tax effort, human development indicators and environmental risk, though any change would require political consensus among provinces, making reform politically sensitive.
Aurangzeb also highlighted the economic achievements of the country in recent years, saying Pakistan’s import cover had improved from roughly two weeks just a few years ago to about 2.5 months currently, adding that the government had repaid a $500 million Eurobond last year.
“The next repayment is of $1.3 billion in April,” he continued, adding that “we will pay these obligations, which are the obligations of Pakistan, as we go forward.”
The minister also noted that unlike in 2022, when devastating floods forced Pakistan to seek international pledges at a Geneva conference, the government did not issue an international appeal during more recent flooding, arguing that fiscal buffers had strengthened.
“This time, the prime minister and the cabinet decided that we do not need to go for international appeal because we have the means,” he said.
He reiterated the government was pursuing export-led growth to avoid repeating past boom-and-bust cycles driven by import-led expansion that quickly depleted foreign exchange reserves and pushed Pakistan back into International Monetary Fund programs.
