Pakistani Finance Minister Muhammad Aurangzeb, who was speaking at the annual Pakistan Development Conference here on Saturday, said that the newly signed agreement between Pakistan and the International Monetary Fund (IMF) will provide Pakistan with macroeconomic stability.
Earlier on Thursday, the minister spoke at a press conference in the capital to announce that the cash-strapped nation had reached an agreement with the global lender on a three-year, $7 billion aid package, giving the economy much-needed relief.
In order to achieve self-sustainability, we should ensure structural reforms in areas such as public finance, energy, and state-owned enterprises and ensure that they are sustainable over the next few years,” said Aurangzeb.
It is anticipated that this new loan program, which must be approved by the IMF’s Executive Board before it becomes available, will enable Pakistan to “consolidate macroeconomic stability, increase economic inclusion, and strengthen growth resilience,” the IMF said in its announcement of the deal.
The economy of Pakistan has been suffering from chronic mismanagement, and has been facing many challenges, such as the COVID-19 pandemic, the consequences of the war in Ukraine, and supply difficulties that led to inflation, as well as record floods that affected a third of the country in 2022.
A cash-strapped nation found itself spiraling into a debt crisis in the summer of 2023, when its foreign currency reserves began to decline. As a result, the nation became forced to turn to the International Monetary Fund, obtaining a first emergency loan from the IMF.
Pakistan’s latest bailout, which comes in the form of loans, comes after the country’s government committed to implement a number of reforms, including a major effort to broaden the country’s tax base as well as to implement new structural reforms.
There were only 5.2 million income tax returns filed in 2022 among a population of over 240 million in a nation where the majority of jobs are located in the informal sector.
According to the government, the amount of tax revenue the government will collect during the fiscal year 2024-25 which starts on July 1, will grow by 40% compared to the previous year to reach nearly $46 billion.
On the other hand, as part of the government’s push to widen the revenue bracket, the Federal Board of Revenue (FBR) has blocked 210,000 SIM cards of subscribers who have not filed tax returns, resulting in a $2 billion revenue gap.
In order to support Pakistan’s economic reform program, the country initiated discussions with a multibillion-dollar lender in order to obtain a new loan agreement, the country’s 24th bailout in more than six decades.
In spite of the fact that around 40% of Pakistani citizens live below the poverty line already, the World Bank stated in April that it feared that 10 million additional Pakistanis would fall below that threshold in the near future.
In addition to this, Islamabad is aiming to reduce its fiscal deficit by 1.5% to 5.9% in the upcoming year, in response to another critical request from the IMF.
As it turned out, the IMF’s last loan of $3 billion, which lasted nine months, had been a lifeline to the country.
In return, unpopular austerity measures had to be imposed, including an end to subsidies cushioning consumer costs, and this made the agreement unpopular.
There has been a slight improvement in Pakistan’s current account balance in the last few months, the high inflation rates have just begun to diminish, but the country’s foreign debt remains very high at $242 billion.
As the IMF has pointed out, the government will still have to be able to service this debt by 2024, which will consume half of its revenue.
There is also an expectation that growth will be 2% this year, though inflation is still expected to be nearly 25% by year-end, before gradually declining from 2025 to 2026.
Timenews1 provided that news.
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