By APD writer Muhammad Sohail

ISLAMABAD, May 13 (APD)- The technical teams of the government of Pakistan and the International Monetary Fund (IMF) have reached an agreement on a bailout package for Pakistan, Adviser to Pakistani Prime Minister on Finance, Revenue and Economic Affairs Abdul Hafeez Shaikh announced on Sunday.

After months of discussions and negotiations, a staff-level agreement has been reached between Pakistan and the IMF, he said while talking to local media.

Shaikh revealed that Pakistan would receive 6 billion U.S. dollars worth of assistance under the IMF programme over a period of three years.

“The Pakistani authorities and the IMF team have reached a staff-level agreement on economic policies that could be supported by a 39-month Extended Fund Arrangement (EFF) for about US $6 billion, an IMF press release quoted IMF Mission Chief for Pakistan Ernesto Ramirez Rigo as saying.

Shaikh said IMF is an international institution whose primary job is to assist member countries who are in an economic difficulty. He said the government could not have bridged the financing gap of $12 billion on its own that he said was created by a weak economy.

Besides the IMF assistance, Pakistan will also receive additional funds worth nearly $2-3 billion from institutions like the World Bank and Asian Development Bank, the adviser revealed.

Shaikh said there were many things desired by the Fund that the government already saw as being in the country's interest; they include aligning expenditure with resources, improve the functioning of loss-making state-owned enterprises, curtail the subsidies available to the wealthy classes and tax the rich segments.

These structural changes are in our interest if we want to take our people in the direction of prosperity and improve their quality of life, the adviser said.

He said because the government wants to send a signal of financial discipline and resolve fiscal challenges, the program would entail raising prices in some areas in order to recover the costs.

Asked whether this would be Pakistan's last IMF program, Shaikh said, “It depends on how successfully we as a country implement this program and approach it as a reform or structural change program instead of a mere revenue-earning program.

The facility aims to support Pakistani authorities’ strategy for stronger and more inclusive growth by reducing domestic and external imbalances, removing impediments to growth, increasing transparency, and strengthening social spending, the IMF statement said.

It said financing support from Pakistan’s international partners will be critical to support the authorities’ adjustment efforts and ensure that the medium-term programme objectives can be achieved.

Rigo in his statement added: Pakistan is facing a challenging economic environment, with lackluster growth, elevated inflation, high indebtedness, and a weak external position. Decisive policies and reforms, together with significant external financing are necessary to reduce vulnerabilities faster, increase confidence, and put the economy back on a sustainable growth path, with stronger private sector activity and job creation.

The IMF mission chief emphasized that in addition to the EFF, a comprehensive plan for cost-recovery in the energy sectors and state-owned enterprises will help eliminate or reduce the quasi-fiscal deficit that drains scarce government resources.

Noting that inflation in Pakistan disproportionately affects the poor, the IMF official said the State Bank of Pakistan will focus on reducing inflation and safeguarding financial stability.

A market-determined exchange rate will help the functioning of the financial sector and contribute to better resource allocation in the economy, he said.

“An ambitious structural reform agenda will supplement economic policies to rekindle economic growth and improve living standards. Priority areas include improving the management of public enterprises, strengthening institutions and governance, continuing anti-money laundering and combating the financing of terrorism efforts, creating a more favorable business environment, and facilitating trade.

Islamabad and a visiting IMF mission had kicked off technical level talks on April 29 to sort out details of the proposed bailout package over the next 10 days. The two sides were scheduled to conclude a staff-level agreement on Friday, but the talks were extended into the weekend, with the finance ministry reporting good progress in the discussions.

The finance ministry had approached the IMF in August 2018 for a bailout package.

(ASIA PACIFIC DAILY)