KARACHI: Independent financial experts on Friday predicted short-term respite for Pakistan in the wake of the $700 million disbursement after the successful first International Monetary Fund (IMF) review under a $3 billion loan program, though they cautioned economic headwinds would persist ahead of the Feb. 8 general elections.
The executive board of the global lending agency greenlit the second tranche under the Stand-By Arrangement (SBA) with Pakistan just a day earlier, following a comprehensive evaluation of the country’s economic reform program.
Last July, the IMF initiated the nine-month SBA to help tackle Pakistan’s domestic and external economic imbalances and establish a framework for securing financial support from various other multilateral and bilateral donors.
“The IMF funding along with recent inflows from multilateral lenders will help the rupee that has been fairly stable for the last couple of months,” Muhammad Sohail, Chief Executive Officer of Topline Securities, commented. “The new tranche will also help the country secure financial rollovers from friendly countries and will ease external debt repayment pressure.”
The IMF board’s decision is expected to increase Pakistan’s foreign currency reserves to nearly $8.8 billion, up from $8.15 billion reported on January 5.
The international lender also acknowledged the country’s macroeconomic conditions had generally improved, predicting a two percent growth in the current fiscal year with the expansion of nascent recovery in the second half of the year.
However, it noted inflation had remained significantly elevated in the country but was likely to decline to 18.5 percent with a tight monetary policy by end-June 2024.
Pakistani financial experts also mentioned that economic challenges were likely to continue despite the successful completion of the IMF review.
“High inflation remains a pressing concern, necessitating a vigilant monetary approach,” Ali Nawaz, Chief Executive Officer of Chase Securities, told Arab News. “To complete the SBA, the government must prioritize maintaining fiscal discipline, fostering a market-driven exchange rate and implementing structural reforms for inclusive growth.”
The key elements of the SBA reform program are the implementation of the current budget to facilitate much-needed fiscal adjustment and debt sustainability, continuation of a market-driven exchange rate, appropriate tightening of monetary policy for disinflation and further progress on structural reforms, particularly related to energy sector viability, improved governance of state-owned entities and climate resilience.
As Pakistan prepares to hold general elections next month, financial experts noted the new government would have to navigate tough challenges to ensure sustained reforms for effective revenue mobilization and disciplined social spending for long-term economic stability.
“The success of the SBA will hinge on the new government’s commitment to address these issues and pursue comprehensive economic policies,” Nawaz said.
However, Ammar Habib Khan, a senior economist, said he was confident the reform measures taken by the caretaker administration would continue post-elections.
“The upcoming government will have to ensure fiscal consolidation, which has already started,” he said. “Problems will arise if the government decides to boost spending abruptly.”
Meanwhile, the bulls at Pakistan’s capital market celebrated the IMF approval of the country’s reform program, with stocks gaining about 500 points by mid-day trading, and the rupee strengthening by around Rs0.50 against the greenback in the interbank market.
Pakistani currency dealers hope the rupee will further stabilize after the IMF program approval and expected inflows from friendly countries, including Saudi Arabia.
“The approval of the first review, an ongoing mineral conference in Saudi Arabia and recent developments in the United Arab Emirates, Qatar, and other countries for investment in Pakistan are good news for rupee recovery,” Malik Bostan, Chairman of Exchange Companies Association of Pakistan, told Arab News.
He said the dealers were expecting the rupee to stabilize around Rs250 against the dollar by the end of the current year, provided the investment inflows materialized.