PESHAWAR:The recent much-awaited approval of a $7 billion bailout package from the International Monetary Fund (IMF) is being hailed as a pivotal development for Pakistan’s economy.
Economic and financial experts strongly believed that this huge financial assistance will help play a crucial role in achieving macroeconomic stability, controlling inflation, and mitigating the ongoing price hikes that have burdened the 241 million population.
The IMF’s Executive Board has approved a 37-month Extended Fund Facility (EFF), which includes the immediate release of the first tranche of less than $1.1 billion.
This marks the 25th IMF program Pakistan has engaged in since 1958, highlighting a long history of economic partnerships aimed at financial and economic recovery besides fiscal stability in the cash-starved South Asian country.
“The new package underscored the Pakistani government’s commitment to implementing vital economic and fiscal reforms and take the country out of economic challenges as the IMF has agreed with our Govt economic revival program,” said Professor Dr. Zilakat Malik, a former Chairman of the Economics Department, University of Peshawar.
Talking to APP, he emphasized that these reforms are essential for consolidating public finances, rebuilding foreign exchange reserves, and enhancing the business environment especially to foster private sector growth in Pakistan.
Dr. Malik also acknowledged the positive roles played by brotherly countries of China, UAE, and Saudi Arabia in securing this landmark package, particularly the decision pertaining to deferring of repayment of $12.7 billion in debts during the program period.
Praising the government’s swift implementation of bold economic and tax reforms soon after assuming power after February 8 election, he said it was instrumental in convincing the IMF to approve the crucial bailout package for Pakistan.
The package was approved after the governmen’s key measures include an increase in tax revenues from Rs1.4 trillion to Rs1.8 trillion and a significant rise in electricity prices of up to 51% in last budget despite opposition criticism.
Notably, the new program expands to cover provincial budgets, marking a departure from past agreements where provincial fiscal policies were largely exempt from IMF oversight.
According to the agreed conditions, all provincial governments are expected to sign a new National Fiscal Pact. This pact aims to transfer responsibilities for health, education, social safety nets, and infrastructure projects to provincial authorities, thereby streamlining governance and fiscal responsibility.
One of the critical aspects of the agreement involves aligning agricultural income tax rates with federal rates. These rates are expected to increase dramatically from 12-15% to 45%. Such measures are seen as essential for enhancing revenue generation in a sector that has historically been under-taxed.
Dr. Zilakat Malik noted that the program stipulates a primary surplus equivalent to 1% of GDP for the current fiscal year, aiming for a target of 3.2% over the next two years. This focus on fiscal discipline is intended to place Pakistan’s debt-to-GDP ratio on a sustainable path.
The backdrop of the package includes Pakistan’s struggles with economic instability exacerbated by the COVID-19 pandemic, devastating floods in 2022, and the long-term effects of terrorism, which have significantly hampered infrastructure development.
Dr. Yousaf Sarwar, former President of the Sarhad Chamber of Commerce and Industry, welcomed the IMF package as a critical step toward addressing these economic challenges currently faced by Pakistan.
With an estimated loss of 80,000 lives and a staggering $150 billion economic setback during war against terrorism, he said the need for foreign assistance has become even more pressing.
The implementation of the IMF program is anticipated to address current account deficits and balance of payments issues, thereby facilitating job creation and industrial development through increased foreign direct investment.
Political leaders, including Ikhtair Wali Khan PML-N KP Information Secretary and former Minister Wajid Ali Khan commended the government’s leadership for securing the IMF program, citing it as a key factor that could help reduce inflation rates and restore investor confidence immensely.
Under Prime Minister Shehbaz Sharif’s administration, efforts have been made to stabilize prices of daily commodities and enhance the overall economic climate. Resultantly, price hike came below single digital and top foreign monetary agencies started praising Pakistan’s economic progress after a long time.
As Pakistan embarks on this new phase of economic and fiscal reforms, the focus remains on implementing these strategies effectively, ensuring that the benefits of the IMF package translate into sustainable economic growth and stability for the country.
The effective collaboration between the federal and provincial governments and external lenders will be crucial in navigating the challenges ahead and achieving the desired outcomes of this bailout package for benefits of people.
