Muhammad Asad Tahir Bhawana

According to WealthPK, the International Monetary Fund (IMF) has released a report highlighting Pakistan's economic reform program, which focuses on stabilizing the economy, reducing the impact of potential shocks, and allowing for social and developmental expenditures to benefit the population. This program was initiated following the prompt allocation of around US$1.2 billion by the IMF. According to the report, ensuring the program's success will depend on steadfast policy implementation, encompassing enhanced fiscal discipline, adoption of a market-driven exchange rate to absorb external pressures, and continued progress in reforms pertaining to the energy sector, climate resilience, and the business environment. Pakistan's newly established program supported by the Stand-By Arrangement (SBA) will serve as a guiding framework for addressing internal and external imbalances, as well as securing financial assistance from both multilateral and bilateral partners.

The key areas of focus within the program include: (1) implementing the fiscal adjustments required in the FY24 budget to ensure debt sustainability while safeguarding essential social expenditures, (2) reintroducing a market-determined exchange rate and fostering effective foreign exchange market functioning to absorb external shocks and eradicate foreign exchange shortages, (3) implementing appropriately stringent monetary policies to combat inflation, and (4) advancing structural reforms, particularly in relation to the viability of the energy sector, state-owned enterprise (SOE) governance, and bolstering climate resilience. Managing Director and Chair Kristalina Georgieva said, "Pakistan's economy experienced significant shocks last year, including the adverse effects of floods, volatile commodity prices, and tightened domestic and external financing conditions.

These factors, along with uneven policy implementation during the Extended Fund Facility (EFF), disrupted the post-pandemic recovery, led to a substantial increase in inflation, and depleted internal and external buffers. The implementation of Pakistan's new Stand-By Arrangement, if faithfully executed, presents an opportunity to restore macroeconomic stability and address these imbalances through consistent policy measures." "The authorities' Fiscal Year 2024 budget, which targets a modest primary surplus, is a positive step towards fiscal stabilization. Enhancing tax revenues is crucial to strengthen public finances and create fiscal space for social and development spending. It is vital to exercise discipline in non-essential primary expenditure to ensure budget execution within the intended framework.

Urgent measures are also required to enhance the viability of the energy sector by aligning tariffs with costs, reforming cost structures, and improving the targeting of power subsidies. Beyond this fiscal year, efforts must be intensified to broaden the tax base, enhance public financial management, and deliver quality infrastructure with increased progressivity and efficiency," she added. The recent increase in the policy rate by the State Bank of Pakistan (SBP) is appropriate in light of significant inflationary pressures, which disproportionately affect the most vulnerable segments of society. It is necessary to maintain a tight, proactive, and data-driven monetary policy going forward. A market-determined exchange rate is essential to absorb external shocks, reduce external imbalances, and restore growth, competitiveness, and buffers.

Vigilant supervision of the banking system and decisive actions to address undercapitalized financial institutions would contribute to financial stability. It is imperative to expedite structural reforms in order to enhance climate resilience, strengthen safety nets, improve governance (including state-owned enterprises), and foster a conducive business environment that promotes investment and trade on a level-playing field. These measures are crucial for job creation and inclusive growth.

Credit: INP-WealthPk