Pakistan's economic future hinges on new govt's approach to IMF program

March 07, 2024 (MLN): Despite media reports suggesting the continuity of the International Monetary Fund (IMF) program as one of the most significant near-term economic risks, Pakistan's economic situation should see incentives aligned for the new government to come together to seek an agreement with the IMF.

This was highlighted in a report issued by Goldman Sachs on assessing the upside to Pakistan’s economy, currency, and USD bonds.

To recall, the IMF recently completed the first review of the $3bn Stand-By Arrangement (SBA) it initiated with Pakistan in July 2023, which unlocked a disbursement of $700m.

However, with the program set to expire on 12 April, this emerges as one of the most significant risks for Pakistan’s economy.

On a positive note, the IMF has stated that they are likely to “visit Pakistan after the formation of the new government to discuss a medium-term bailout package”.

The country also appears to be hitting the key milestones needed to continue in an IMF program.

As stated in the publication on the first review of the SBA, the program remains on track, with six out of the seven quantitative performance criteria having been met on the back of strong fiscal performance, with the primary balance reaching 0.4% of GDP in FY 2024 Q1 amid strong revenues.

IMF macro estimates for FY2023/24 are at or above targets defined in the SBA, and this holds true for gross reserves import cover, fiscal and external balances and inflation.

Given the realized fiscal surplus, Goldman Sachs forecasts for a contained current account deficit and the central bank’s cautious stance despite persistent disinflation, it sees the main risks on the external financing and reserve accumulation, both of which depend on continued IMF funding.

It will be important to monitor policy continuity in the wake of the general elections to assess compliance with the Fund’s program targets, and ultimately the likelihood of another funding facility.

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