Pakistan reaches agreement with IMF for $7 billion loan

Pakistan has reached a staff-level agreement with the International Monetary Fund (IMF) for a new loan programme of $7 billion.

The agreement for the 37-month Extended Fund Facility (EFF) will now go to the IMF’s Executive Board for approval.

Pakistan previously completed a $3 billion Standby Agreement with the IMF in April.

Since then, the government has continued to take measures to stabilise the economy, including broadening the tax base.

The new loan programme aims to support macroeconomic stability achieved during fiscal year 2023-2024 by strengthening public finances, reducing inflation, and building external buffers while removing economic distortion.

Its main features are:

• Broadening the tax base, eliminating exemptions, and increasing social protection spending.
• Increasing tax revenue by 1% of GDP in FY25 and 3% over the programme’s duration.
• Targeting 1% of primary surplus in FY25.
• Targeting untaxed sectors such as export and retail and making direct and indirect taxation simpler and fairer.
• Introducing agriculture tax in all provinces by January 2025.
• Reducing inflation, increasing access to financing, and building strong external buffers.
• Focusing the monetary policy on disinflation.
• Maintaining a flexible exchange rate and continuing to improve the functioning of the foreign exchange market.
• Improving State Owned Enterprises (SOEs) operations and management alongside privatization of SOEs with highest priority given to most profitable SOEs.

The Pakistan-IMF agreement is likely to lead to new loan programmes with other multilateral organizations, such as the Asian Development Bank and Asian Infrastructure Investment Bank, and bilateral partners.

The inflows from the EFF will help shore up Pakistan’s foreign exchange reserves, which had fallen to cover less than one month’s of imports last year, putting the country at risk of default.