Deal with IMF

Pakistan's battered economy heaved a sigh of relief as a staff-level deal with the IMF was struck on the second review of EFF and first review of 28-month RSF. The outcome will see a staggering $3.3 billion hit the coffers, providing some smooth sailing as exports and production continue to pose concern. While the agreement is subject to approval by the Fund's Executive Board, it is widely hoped that it will come through. The lenders have patted on the back of economic gurus for monetary discipline and for realising their promises in the realms of macroeconomic reforms and keeping inflation under IMF limits.

As the deal was announced, the PSX surged by 2000 points, reflecting renewed confidence among the investors. The to-do list, however, is quite daunting if future tranches from the IMF are to be realised. The foremost challenge include meeting primary budget surplus of 1.6% of GDP, enhancing tax collection, sustaining fiscal discipline, retaining the strength of currency, and ensuring energy sector reforms. Likewise, keeping inflation under the tab and zealously working for climate change reforms under the RSF will keep the manager on toes.

The Fund's delight was to notice that Pakistan has come a long way in browbeating scepticism by implementing reforms and overcoming current account deficit for the first time in 14 years. This, the Washington-based lender believes, has restored market confidence, with sovereign spreads narrowing. The euphoria, however, could be short-lived as an unusual monsoon has played havoc with the agrarian sector, and Pakistan is on the verge of losing at least 10% crop production.

This crunch is coupled with a downslide in exports, especially in textiles, necessitating efforts to enhance revenue collection, broaden burden-sharing between federal and provincial governments, and strengthen public financial management. With the economy forecast to grow below 2.4%, irrespective of a higher target set by the government, there is need to keep an eye on foreign exchange market, support price discovery and cushion external shocks.