ISLAMABAD: Finance Minister Muhammad Aurangzeb on Saturday said that Pakistan will achieve macroeconomic stability with the help of a newly signed agreement with the International Monetary Fund (IMF).
The minister’s remarks come a day after the cash-strapped nation reached a three-year, $7 billion aid package deal with the global lender, giving much-needed respite to the struggling economy.
“We need to ensure structural reforms and bring self-sustainability in areas of public finance, energy, and state-owned institutions,” said Aurangzeb who hopes to achieve them in the next few years.
The new loan program, which needs to be validated by the Fund’s Executive Board, should enable Pakistan to “cement macroeconomic stability and create conditions for stronger, more inclusive and resilient growth,” the IMF said while announcing the deal.
Faced with chronic mismanagement, Pakistan’s economy has found itself on the brink, challenged by the COVID-19 pandemic, the effects of the war in Ukraine and supply difficulties that fuelled inflation, as well as record flooding that affected a third of the country in 2022.
With its foreign currency reserves dwindling, the cash-strapped nation found itself in a debt crisis and was forced to turn to the IMF, obtaining its first emergency loan in the summer of 2023.
The latest bailout, coming to Pakistan in the form of loans, follows a commitment by the government to implement reforms, including a major effort to broaden the country’s tax base.
In a nation of over 240 million people and where most jobs are in the informal sector, only 5.2 million filed income tax returns in 2022.
During the 2024-25 fiscal year which starts July 1, the government aims to raise nearly $46 billion in taxes, a 40% increase from the previous year.
As part of the push, the Federal Board of Revenue (FBR) blocked 210,000 SIM cards of users who have not filed tax returns to widen the revenue bracket earlier this month.
Pakistan initiated discussions with the lender for the new multi-billion dollar loan agreement — its 24th bailout in more than six decades — to support its economic reform program.
While around 40% of the population already lives below the poverty line, the World Bank said in April it feared that 10 million additional Pakistanis would fall below this threshold.
Islamabad also aims to reduce its fiscal deficit by 1.5% to 5.9% in the coming year, heeding another key IMF demand.
The last loan — a nine-month $3 billion IMF deal — proved a lifeline.
But it came on the condition of unpopular austerity measures, including an end to subsidies cushioning consumer costs.
In recent months, the current account balance has recovered slightly, high inflation is just starting to come down, but Pakistan’s foreign debt remains very high at $242 billion.
Servicing it will still swallow up half of the government’s income in 2024, according to the IMF.
The Fund also anticipates 2% growth this year, with inflation still expected to reach nearly 25% year-on-year, before gradually coming down in 2025 and 2026.
