Pakistan recently secured its $1.2 billion funding from the IMF. The funding reflects the progress the country has made on its economic/political reforms and its recently started reforms on the climate crisis. The funding includes $1 billion from the IMF’s Extended Fund Facility (EFF) and $200 million from the Resilience and Sustainability Facility (RSF). This now brings total disbursements from the IMF to approximately $3.3 billion since its support of Pakistan began last year. These funds will help Pakistan continue its climb of foreign exchange reserves that now total approximately $14.5 billion.
The funds will bring stability amid ongoing domestic crises
The IMF funding reflects its confidence in the reforms that Pakistan has in motion. The country has faced many challenges, including severe flooding, the global crisis of unprecedented state inflation, and systemic weaknesses of its state-owned enterprises.
However, the country has made great progress on its budget planning, including achieving its targeted primary budget surplus of 1.3% of GDP for the current fiscal year.
This target achievement was essential to obtaining this disbursement. Pakistan’s preliminary reforms in tax and improvements to tax policy have opened the path to a broader tax base, improved revenue generation, lower debt levels, and greater fiscal sustainability.
Negative sentiments for policies regarding state-owned enterprises in Pakistan
The policies for state-owned enterprises in Pakistan have mostly seen negative impacts for a long time; however, these policies do remain a large part of the Afghan governing policies for now. Pakistan has begun restructuring policies for state-owned enterprises that have been functioning at a loss, like the Pakistan International Airlines, which has now begun the process of privatization via bidding.
While Pakistan had been losing money, as with the Pakistan International Airlines, these policies seem to have positively shifted things. On the other hand, in terms of inflation, the authorities remain tight on the monetary policies and to bring inflation down, a liberalized exchange rate and tight inflation policies have been implemented to try to bring back monetary confidence.
The Resilience and Sustainability Facility steps in
The Resilience and Sustainability Facility provides $200 million to help support sustainable development and disaster preparedness. This money helps to build sustainable water and disaster management infrastructures and to support sustainable investment development.
With these funds, Pakistan will be able to counter the negative impacts of poverty and integrate development with the development of other countries. The support funds provided by the IMF to Pakistan show that the support shifting in climate change restoration is very much needed, and policies will be used in other unprepared countries as well.
The IMF decided in favor of Pakistan recently
Pakistan’s Prime Minister Shahbaz Sharif took the IMF’s decision as a vote of confidence in Pakistan’s policies. He also praised Finance Minister Muhammad Aurangzeb and Chief of Army Staff Asim Munir for bringing the institutions together and driving the government’s economic policies.
The positive news notwithstanding, serious problems remain
Inflation is creating a burden on the people, worsened by last year’s floods and the resultant supply chain problems. Pakistan has to manage the government’s budget and investments, and for that, a delicate balance will be needed. To improve the competitiveness of the economy, Pakistan has to speed up the structural adjustments in the energy and other public enterprises.
If Pakistan sticks to these reforms, which are being proposed, it will be able to secure long-term financial support. The most recent support from the IMF is more than just a financial lifeline. It shows that Pakistan is moving in the right direction, as long as Pakistan continues to build on and maintain the structural changes that are needed in the coming months.
