Latest news with #ExtendedFundFacility
Business Recorder
2 days ago
- Business
- Business Recorder
Aurangzeb praises World Bank's valuable contributions to Pakistan
ISLAMABAD: Federal Minister for Finance and Revenue Muhammad Aurangzeb, on Friday, met with the World Bank Pakistan team, including Najy Benhassine, outgoing country director, and Bolormaa Amgaabazar, incoming Country Director for Pakistan. During the meeting, the finance minister warmly welcomed Bolormaa Amgaabazar to Pakistan and extended his best wishes for her upcoming assignment. He expressed confidence that the collaborative efforts between Pakistan and the World Bank would continue to flourish under her leadership. Ahsan vows to deepen cooperation with World Bank Aurangzeb also took the opportunity to commend Najy Benhassine for his valuable contributions and unwavering support to the Government of Pakistan throughout his tenure. He acknowledged Benhassine's role in strengthening the development partnership and wished him success in his future endeavours. Highlighting the enduring relationship between Pakistan and the WB, the minister expressed gratitude for the bank's generous financial and technical assistance across key sectors of the economy. He emphasised the importance of the recently signed 10-year Country Partnership Framework (CPF) as a pivotal element in Pakistan's economic roadmap, noting its potential to transform critical sectors through strategic and well-coordinated implementation. Aurangzeb underscored the significance of effectively executing the CPF's Country Financing Framework (CFF), describing it as essential to unlocking the full benefits of the WB's support. He particularly praised the institutional, technical, and financial backing consistently provided by the bank. The minister also highlighted the recent successful completion of the International Monetary Fund (IMF) review and the subsequent $1 billion disbursement under the Extended Fund Facility (EFF), along with additional resources made available through the Resilience and Sustainability Facility (RSF). He noted that development finance must be guided by merit and objective assessment, rising above political considerations to ensure sustainable progress. The meeting reaffirmed the mutual commitment to strengthening Pakistan's economic resilience and advancing inclusive development through strategic partnerships. Copyright Business Recorder, 2025
NDTV
3 days ago
- Business
- NDTV
India May Be Barking Up The Wrong Tree As It Takes On Pakistan In IMF
On May 9, the International Monetary Fund (IMF) approved the disbursement of another $1 billion to Pakistan under its latest Extended Fund Facility (EFF), reinstating Pakistan's dependence on international bailouts. As a country with a high dependence on imported oil, whenever oil prices hike or international borrowing declines, Islamabad's reserves take a further hit. Since 1958, whenever this occurs, Pakistan has approached the International Monetary Fund (IMF) for a bailout approximately every three years, seeking to save its economy under the condition of improving macroeconomic indicators. While the role of the IMF has been minimal in reforming Pakistan's governance, its fund facilities have stabilised the economy from falling into the pit grave. However, the key question remains: have IMF bailouts inadvertently enabled an environment to facilitate terror financing? If so, should India try to block IMF funds to Pakistan? India Needs An Accountable Pakistan Contrary to popular imagination, the IMF's role is distinct, and its programmes impose strict conditions that compel Islamabad to demonstrate some accountability in governance and economic management. And India needs an accountable Pakistan. While the IMF can serve as a platform for India to signal its displeasure and apply international diplomatic pressure following the Pahalgam attack on April 22 by alleged Pakistan-backed terrorists, a more effective route to achieving strategic objectives would be to target terror financing networks and financial opacity through the Financial Action Task Force (FATF), the global watchdog on money laundering and terror financing, where reports suggest India is already preparing to build a robust case against Pakistan. A History Of Bailouts Persistent macroeconomic imbalances have led to a state of massive public debt, with the country facing massive external debt repayment dues. The Pakistani economy has structural weaknesses, from a narrow tax base to low productivity. Islamabad is also extremely dependent on imported energy, with energy imports accounting for 20 to 40 % of total imports. Of the previous 25 IMF programmes, 15 were sought during times of oil crisis, caused due to energy import dependence. A worsening balance of payment crisis and periodic foreign exchange shortages have also emerged over time. For instance, in 2021-2023, foreign exchange reserves plummeted as low as about two weeks' worth of imports, and inflation jumped to 38%. Pakistan's performance in development indicators is also severely lacking. It ranks 109th out of 127 countries in the 2024 Global Hunger Index, with 40% of the population in poverty and public expenditure on health and education below 3% of the GDP in 2023. All these factors have led to Pakistan approaching the IMF 25 times since 1958, with the latest fund arrangement approved on September 25, 2024. Recovery, But Modest Corrective policies adopted under the IMF programmes have stabilised some economic conditions to a limited extent. Pakistan, with seven decades of cyclical debt accumulation with the IMF, was able to bring a modest recovery under these programmes. The economic growth rebounded to 2.4% from 0.6% in 2023, and inflation was brought to single digits from double-digit levels in 2025. In the latest 37-month Extended Fund Facility (EFF) arrangement, which commenced in 2024, the key conditionalities of the IMF programme include implementing sound macroeconomic policies, such as rebuilding international reserve buffers, broadening the tax base, enhancing productivity and competitiveness, and reforming State-Owned Enterprises (SOEs). While Pakistan may continue to rely on the IMF to develop reform plans to enhance its economy, the IMF's role remains minimal until the authorities undertake domestic reforms to improve their governance. However, it forces Pakistan to be accountable to the IMF and the world regarding the money it receives. Why FATF Is Important In that context, fiscal accountability under IMF programmes falls short of addressing the deeper security risks that shape Pakistan's economic trajectory. This is where the role of the FATF becomes critical. It is within the FATF's mandate to identify jurisdictions with strategic deficiencies in countering illicit financing and to take consequential action, including greylisting and blacklisting. These designations significantly restrict a country's access to global capital, raise borrowing costs, and create barriers to securing funding from international financial forums such as the World Bank and the IMF. To put things in perspective, it is the FATF's actions that restrict the IMF's support. When Pakistan was placed on the FATF grey list between 2018 and 2022, it faced significant economic and diplomatic fallout, including increased scrutiny from investors, diminished confidence in its markets, delays in financial assistance, and, more critically, a reputational setback to its reform narrative. The designation also brought targeted pressure on hawala networks, non-profit fronts, real estate transactions, and the misuse of precious metals by Pakistan-based groups such as Lashkar-e-Taiba (LeT) and Jaish-e-Mohammed (JeM). To remove itself from the grey list, Pakistan was compelled to enact over 30 legislative reforms aimed at strengthening its anti-terror financing architecture. However, the recent attack in Pahalgam is likely to evoke renewed concerns regarding the legitimacy and political will behind these measures by Pakistan. Why Building Western Consensus Is Tricky India's pressure campaign at the FATF thus presents a more targeted and relevant avenue to raise the costs of Pakistan's persistent reliance on sub-conventional warfare. That said, the lack of publicly presented evidence linking the Pahalgam attack to Pakistan-based handlers and support from the deep state may undermine the credibility of India's case, thereby delaying FATF-led actions. Geopolitically, the end of the US-led 'War on Terror' in Afghanistan weakened the global political momentum behind counter-terror financing efforts. In that light, despite strategic ties with the US, India's attempts to build Western consensus for punitive action against Pakistan at FATF will remain complicated. India's window for targeted diplomatic action remains narrow. With Washington distracted and China shielding Pakistan at key fora, New Delhi must also enhance engagement with middle-power allies in the Gulf and Europe as a long-term strategy. (Aishwaria Sonavane and Anisree Suresh are Research Analysts at the Takshashila Institution, which is an independent think tank and school of public policy.)
Business Recorder
3 days ago
- Business
- Business Recorder
A ‘bold' budget for next FY
EDITORIAL: Finance Minister Muhammad Aurangzeb while addressing an event organised by Karandaz Pakistan and Pakistan Banks Association claimed that macroeconomic stability has been achieved. However, this stability, as per the October 2024 documents relating to the approval of the ongoing Extended Fund Facility programme are, is disturbing as the country's vulnerabilities continue to persist. The Fund document notes, 'A large part of the economy is uncompetitive, propped up by the extensive use of protection, subsidies, and tax concessions, which have undermined the tax base. Protectionism, including from new entrants in domestic markets has undermined competition, leading to inefficiency and low productivity. A difficult business environment and weak governance have hindered investments, which remain significantly lower than peer countries, further undermining competitiveness. Economic volatility has only increased over time, with a tight correlation between Pakistan's boom-bust economic outcomes and its macroeconomic policies. The repeated attempts to boost economic activity through fiscal and monetary stimulus have not translated into durable growth, as domestic demand increased beyond Pakistan's sustainable capacity, resulting in inflation and depletion of reserves, given a strong political preference for stable exchange rates. Each subsequent bust has further harmed Pakistan's policy making credibility and investment sentiment.' Aurangzeb further stated that the government is preparing to introduce 'bold measures' in the budget with a focus on strategic direction. One must welcome this orientation that was lacking in previous budgets as the focus was on balancing the books through raising the target revenue to an unrealistic level that was rarely if ever met by the end of the year, and adjusting the shortfall through slashing the Public Sector Development Programme (PSDP). In addition, domestic and external borrowing was increasingly relied on to meet our external financing needs (read repayment of interest and principal as and when due on foreign debt) as well as the budget deficit targets agreed with the IMF; and in this context it is relevant to note that in the current fiscal year the budgeted external borrowing has not yet materialised, partly due to global factors but partly due to Pakistan's high-risk rating that continues in spite of claims of having achieved economic stability. Next year's foreign borrowing requirements are projected at 19.3 billion dollars, which no doubt would limit the government's capacity to introduce some 'bold measures' unless of course the government is able to slash current expenditure at best or keep it at 2024-25 levels at worst. The minister proceeded to aver that rather than making the math work the government intends to make the budget more strategic. This too must be appreciated though the recent statement by the Finance Ministry delivered during the meeting of the sub-committee of the National Assembly on Commerce should be a source of concern; notably, the acknowledgement that there was a disagreement with the Fund over some key budgetary figures including subsidy allocation. There is overwhelming evidence that Pakistan has almost no leverage with the Fund at present that would allow the authorities an element of phasing out the harsh up-front conditions without proactively exercising leverage through either pension reforms (with the start of employee contributions) and resisting a pay raise for the 7 percent of the workforce which receives a salary at the taxpayers' expense, a policy that no previous administration has been able to implement, and to strictly adhere to the math behind the budget document by adhering to the expenditure and revenue sources identified in the budget. The minister also claimed that Pakistan has achieved macroeconomic stability and emphasised the need for avoiding past mistakes that accounted for the boom-bust syndrome. There is no doubt that in the past the 'sugar high' he referred to was a factor that led the country to repeat the same mistakes over and over again: pumping liquidity into the market (through mainly government expenditure on industrial incentives and subsidies), which led to sustaining an industrial base (that envisages exporting the surplus rather than producing for export) that requires massive imports which, in turn, led to periodic balance of payment issues requiring IMF programme loans. The challenges facing the country's economy are immense and one can only hope that the finance minister stays the course, with full support from all stakeholders, otherwise the country would be pushed deeper into the mire with the prospect of success even more difficult. Copyright Business Recorder, 2025
Business Recorder
3 days ago
- Business
- Business Recorder
Budget: time for respite & reform
Pakistan has shown signs of overall stabilisation, supported by improved fiscal performance, strengthened external account, and receding inflation. Revenue Mobilization and restrained current spending have contributed to a narrower fiscal deficit and a surplus primary balance. The current account registered a higher surplus, driven by remittances and export growth, while reserves have improved, and the exchange rate remains stable, aligned with the market. Inflation has reduced to its lowest level, creating space for a more supportive monetary policy in upcoming months. Although overall industrial activity remained weak. However, automobiles and export-oriented sub-sectors showed an impressive performance. Social protection and climate finance initiatives are progressing, reinforcing the path toward inclusive and sustainable growth. Economic Update & Outlook- April – 2025, Government of Pakistan, Ministry of Finance The budget for fiscal year (FY) 2025–26, to be presented on June 10, 2025, is set against a backdrop of critical reforms, macroeconomic recovery, and renewed commitments to fiscal discipline. The International Monetary Fund (IMF), concluding its staff visit of Islamabad, headed by Nathan Porter, has provided a direction for budget formulation and broader economic restructuring. Engaged in serious dialogue and detailed consultations with Pakistan's federal and provincial authorities, the IMF mission outlined contours of the new fiscal framework, macroeconomic objectives, and structural reforms. The mission acknowledged satisfactory progress and laid out stringent conditions under the US$ 7 billion 37-month Extended Fund Facility (EFF) and the Resilience and Sustainability Facility (RSF) programmes. IMF's EFF programme's primary objective is to achieve a primary surplus of 1.6 percent of GDP in FY2026 through robust revenue generation and prioritized expenditure, urging on enhancement in tax compliance, broadening of tax base and rationalization of fiscal spending. The strategic framework agreed upon during this mission now defines the configurations of Pakistan's forthcoming budget, making it a cornerstone of economic recovery and international confidence. IMF's recommendations centered on revenue generation without undermining inclusive growth. Emphasis on expanding the tax base through policy and administrative measures echoed the need to transition from narrow, burdensome taxation to a more equitable and growth-oriented regime. The Pakistani authorities were advised to limit untargeted subsidies, curtail wasteful expenditures, and ensure targeted social protection. The IMF reinforced the importance of sound macroeconomic policies including maintaining a tight and data-driven monetary stance. State Bank of Pakistan's (SBP's) objective to keep inflation at a minimum level was endorsed, and a flexible exchange rate regime was deemed critical to managing external shocks and rebuilding reserve buffers. Focus on energy sector reform also featured prominently, particularly addressing ineptitudes in tariff structures, reducing system losses, and ensuring cost-recovery pricing. The fiscal framework was required not only to meet debt sustainability metrics but also to enable pro-investment policies that promote long-term economic stability and job creation. IMF's reform recommendations aligned with Pakistan's economic data reveals both progress and persisting structural flaws. April 2025 Economic Update issued by the Ministry of Finance offers insight into these dynamics. The macroeconomic indicators have shown signs of recovery. Improved revenue performance, moderated inflation, and current account surplus suggest that the economy is gradually transitioning from a crisis management phase to a recovery path. Fiscal deficit for Jul-Feb FY2025 declined to 2.2 percent of GDP, while primary surplus stood at 3 percent of GDP, indicating prudent fiscal management. Revenue receipts grew by 43.3 percent year-on-year, with a substantial 73 percent surge in non-tax revenues. The Federal Board of Revenue (FBR) collected, after blocking refunds and taking advances not yet due, Rs. 8.45 trillion during Jul-Mar FY2025, reflecting a 25.9 percent increase (sic) as compared to corresponding period of last year. These improvements offer fiscal space that can be strategically directed towards productive expenditure. The monetary side remains cautiously supportive. Inflation, which stood at 20.7 percent in March 2024, declined sharply to 0.7 percent year-on-year by March 2025, a multi-decade low. Decline in inflation provides policy room for easing monetary conditions, potentially reducing interest burden and supporting credit flows to the private sector. SBP's foreign exchange reserves reached US$10.6 billion as of April 2025, contributing to total reserves of US$15.7 billion. The current account posted a US$1.9 billion surplus, supported by export recovery and a record US$28 billion in remittances. These figures highlight a restored balance of payments discipline and reduced reliance on external borrowing. The industrial sector presents a mixed picture. Large-scale manufacturing (LSM) output remained under pressure with a decline of 1.9 percent in Jul-Feb FY2025. However, segments such as textiles, apparel, and petroleum products showed resilience. The automobile sector registered significant growth in production, indicating that selective industrial recovery is underway. Cement exports grew by 28.1 percent despite weak domestic demand. These sectoral trends underline the importance of targeted incentives and consistent energy supply to stimulate broader industrial revival. The agricultural sector, often overlooked in fiscal prioritization, displayed its strength during the Rabi season. Wheat was cultivated on over 22 million acres with an estimated output of 27.9 million tonnes. Agricultural credit disbursement rose by 15.4 percent while imports of agricultural machinery surged by 40.5 percent. The above trends in agricultural sector reflect early success in mechanization and access to input, supporting the argument for increased public investment in rural productivity. Data from the update supports IMF's call to expand the agricultural tax net, which remains a politically sensitive but economically necessary reform. The external sector's performance supports confidence. Exports rose 7.7 percent to US$24.7 billion, led by garments and textiles, while IT exports surged by 23.7 percent to US$2.8 billion. Remittance inflows showed robust growth from key corridors such as Saudi Arabia and the United Arab Emirates (UAE). Foreign direct investment (FDI) increased by 14 percent, reaching US$1.6 billion, primarily in financial services, energy, oil and gas. Stock exchange index crossed 117,000 points in March, driven by positive investor sentiment. These trends reflect growing market confidence, aided by macroeconomic stabilisation and policy predictability. IMF's emphasis on rebuilding investor confidence is thus partially validated by these developments. IMF's concern about energy sector inefficiencies is well-placed. The high cost of power generation, transmission losses, and circular debt accumulation have long undermined competitiveness. The budget must respond with a roadmap for tariff rationalization, elimination of cross-subsidies, and improved governance of distribution companies. Power sector reforms must go beyond pricing to address theft, billing inefficiencies, and lack of investment in renewable energy. IMF's emphasis for cost recovery-based pricing and legislative changes for levies must be operationalized in this budget cycle. Resilience of the social protection system was also recognized. The government spent Rs 347 billion under Benazir Income Support Programme (BISP) during Jul-Feb FY2025, representing an 82.6 percent increase over the previous year reflecting the commitment to shielding vulnerable households, in line with IMF's directions on protecting priority expenditures. Continuity of inflation-linked transfers under the Kafaalat programme must be embedded in the budgetary framework. Integration of digital tools in welfare delivery should be expanded to improve targeting and transparency. The budget must now transform these policy directions and macroeconomic signals into actionable proposals. Priority should be broadening tax base through digitization and enforcement. The FBR should diligently enforce digital invoicing, inter-agency data sharing, and AI-based risk profiling to enhance compliance. The large undocumented segments in retail, real estate, and agriculture must be brought under the tax net. Simplification of tax procedures, reduction in litigation, and automation of refunds will improve compliance and reduce resistance. The second priority should be providing relief to the salaried class. Inflation has eroded real incomes, and relief must be extended through upward revision of tax slabs and introduction of indexation. The withholding and advance tax mechanisms must be streamlined to prevent excess collection and delays in refund. The burden of indirect taxes such as General Sales Tax (GST) disproportionately affects fixed-income households. Reduction of sales tax rates, particularly on essential items and utilities, must be considered. The fiscal space generated by non-tax revenues and improved FBR performance offers room for targeted tax relief. The third priority is energy sector reform. The budget should announce a timeline for tariff rebasing, reduction of subsidies, and modernization of grid infrastructure. Investment in smart metering and solar integration must be scaled up to reduce technical losses. The use of petroleum levy must be linked to infrastructure investment in the energy sector rather than general revenue needs. Structural bottlenecks in the energy sector directly affect industry competitiveness and must be addressed holistically. The fourth priority is stimulating GDP growth through public development spending and private investment. The Public Sector Development Programme must prioritize high-yield projects with employment impact, especially in transport, housing, and rural connectivity. Private sector participation in infrastructure through public-private partnerships should be incentivized via fiscal guarantees and tax relief. The budget must facilitate credit to small and medium enterprises (SMEs) through interest subvention and guarantee schemes. The government should allocate funds for technology parks, export clusters, and skill training to support job creation and competitiveness. The fifth priority is building external resilience. The budget must aim to support export diversification through sector-specific incentives and simplification of export procedures. Foreign exchange reserves should be improved by retaining remittance inflows through formal channels via attractive saving instruments. The incentives for FDI should include tax holidays, contract enforcement guarantees, and repatriation ease. The Board of Investment must be allocated resources for aggressive outreach and facilitation. The sixth priority must be institutional reform. The budget must include allocations for digitization of land records, integration of National Database & Registration Authority (NADRA) with economic databases and strengthening of regulatory bodies. The anti-corruption agencies must be funded to improve accountability in public spending. IMF's insistence for governance diagnostics must translate into budgetary measures that strengthen institutions and restore public trust. Budget for FY2025–26 should not be merely a fiscal document, but a test of political will and administrative capability. IMF's confidence, validated by completion of the first EFF review and RSF approval, presents a unique window for reforms. The economic data shows promise, but the transition from stabilisation to growth requires sustained effort. The public expects meaningful relief, the markets expect clarity, and the international community expects reform. The budget must deliver all three. The government has an opportunity to use this budget as a platform for transformation. Clarity of priorities, alignment with global institutions, and responsiveness to domestic needs can together chart a sustainable economic path. The time for incrementalism is over. The moment calls for ambition, discipline, and action. The future of Pakistan's economy may well be written in the pages of the FY2025–26 budget. (Huzaima Bukhari & Dr Ikramul Haq, lawyers and partners of Huzaima & Ikram, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE) and Abdul Rauf Shakoori is a corporate lawyer) Copyright Business Recorder, 2025
Business Recorder
3 days ago
- Business
- Business Recorder
SBP-held foreign exchange reserves increase $70mn to $11.52bn
Foreign exchange reserves held by the State Bank of Pakistan (SBP) increased by $70 million on a weekly basis, clocking in at $11.52 billion as of May 23, data released on Thursday showed. Total liquid foreign reserves held by the country stood at $16.64 billion. Net foreign reserves held by commercial banks stood at $5.12 billion. The central bank did not attribute any reason to the increase in the FX reserves. 'During the week ended on 23-May-2025, SBP reserves increased by US$ 70 million to US$ 11,516.0 million,' it said. Last week, SBP foreign exchange reserves increased by $1.04 billion to $11.45 billion, a 4-month high. The increase had come on the central bank receiving second tranche of SDR 760 million ($1.023 billion) from the International Monetary Fund (IMF) under Extended Fund Facility (EFF) programme.
