IMF says it reaches staff level accord with Pakistan to disburse $1.1 billion

By Ariba Shahid and Asif Shahzad

ISLAMABAD (Reuters) -The International Monetary Fund said on Wednesday it had reached a staff level agreement with Pakistan, which if approved by its board, will disburse $1.1 billion for the South Asian country’s broken economy as it struggles with a balance of payment crisis.

The funds are the final tranche of a $3 billion last-gasp rescue package Pakistan secured last summer, which averted a sovereign debt default. Islamabad is also seeking another long-term bailout.

“The IMF team has reached a staff-level agreement with the Pakistani authorities on the second and final review of Pakistan’s stabilization program,” the IMF said in a statement.

“This agreement is subject to approval by the IMF’s Executive Board,” it added. The deal expires on April 11 and while Pakistan has yet to be added to the IMF’s executive board’s calendar, officials say board approval is expected sometime in April.

The deal comes after the IMF mission held five days of talks with Pakistani officials to review the fiscal benchmarks set for the loan.

“Pakistan’s economic and financial position has improved in the months since the first review, with growth and confidence continuing to recover on the back of prudent policy management and the resumption of inflows from multilateral and bilateral partners,” the IMF said.

However, growth is expected to be modest this year and inflation remains well above target, as Pakistan needs more policy reforms to address its “economic vulnerabilities”, the lender added.

Pakistan’s sovereign dollar bonds rallied, with several gaining more than 1%. All of its sovereign dollar bonds were trading above 75 cents on the dollar after a remarkable rally so far this year. The 2026 maturity was bid at 88.53 cents, 21 cents higher than in January and more than 50 cents above its level a year ago.

NEW AGREEMENT

The IMF said Pakistan had expressed interest in another bailout during the review talks, with discussions on a medium-term programme expected to start in the next few months.

Prime Minister Shehbaz Sharif told his cabinet on Wednesday that Pakistan needed a new IMF loan, adding that increasing the tax base was mandatory for securing this deal.

“The IMF agreement will improve the country’s economy,” Finance Minister Muhammad Aurangzeb said in the cabinet briefing, according to a statement from Sharif’s office.

The government has not officially stated the size of the additional funding it is seeking. Bloomberg reported in February that Pakistan planned to ask for a loan of at least $6 billion.

Ahead of the stand-by arrangement, Pakistan had to meet IMF conditions including revising its budget, and raising interest rates as well as generating revenues through more taxes and hiking electricity and gas prices.

It had also recommended reforms in loss-making state-owned enterprises, including the national flag carrier, Pakistan International Airline (PIA), which Islamabad has already put up for sale.

The cabinet also approved setting up a holding company to park the airline’s debt and liabilities, the statement said, terming it an important milestone toward its privatisation.

The IMF said the government was committed to these measures, and called for broadening the tax base as well as adjusting power and gas tariffs.

Economist Sakib Sheerani said the new long-term agreement would be focusing more on deeper structural conditionality such as the public sector wage and pension bill.