Pakistan is on the verge of securing approval from the International Monetary Fund (IMF) for its ambitious agenda. However, to achieve this milestone, the country must address key concerns related to the proper functioning of the foreign exchange market, aligning the federal budget with the lender’s objectives, and obtaining credible financing commitments. In this article, we will delve into the crucial steps Pakistan needs to take to bridge the $6 billion gap and gain approval from the IMF before the expiration of the $6.5 billion Extended Fund Facility (EFF) on June 30.
Restoring the FX Market and Fiscal Budget Consistency
Esther Perez Ruiz, the IMF’s resident representative for Pakistan, emphasized the significance of restoring the proper functioning of the foreign exchange market and passing a fiscal year 2023-24 budget that aligns with the program objectives. These steps are essential to pave the way for a final review under the current EFF. The IMF has communicated to the Pakistani authorities that there is only one remaining Board meeting at the end of June.
Balancing Debt Sustainability and Social Spending
One of the IMF’s expectations for the budget 2023-24 is to strike a balance between strengthening debt sustainability prospects and creating room for increased social spending. The discussions surrounding the fiscal year budget focus on achieving this delicate equilibrium. By doing so, Pakistan aims to alleviate inflationary pressures on vulnerable communities. However, achieving this goal will require diligent efforts to identify effective spending and revenue-generating measures.
The Road to IMF Funds Release
In order to persuade the IMF to release the much-needed funds, the Pakistani government has implemented several measures. These include levying taxes, increasing energy tariffs, reducing subsidies, and raising the policy interest rates of the central bank to a record 21 percent. These actions demonstrate the government’s commitment to resolving the crisis, addressing supply shortages, and mitigating default risks. Furthermore, securing the IMF loan is crucial for stabilizing the economy ahead of the upcoming elections later this year.
As Pakistan prepares for the final review under the current EFF, it must prioritize satisfying the IMF’s requirements. By restoring the proper functioning of the foreign exchange market, aligning the fiscal budget with program objectives, and obtaining firm and credible financing commitments, Pakistan can bridge the $6 billion gap and secure approval from the IMF. This approval is essential for overcoming the crisis, alleviating supply shortages, and safeguarding the economy from default risks. With strategic measures and effective implementation, Pakistan can pave the way for a brighter economic future.