Under the IMF deal, Pakistan has agreed to increase tax revenues through measures of 1 and a half per cent of GDP in FY25 and three per cent of GDP over the programme.

Pakistan and the International Monetary Fund (IMF) have agreed on a $7 billion aid package spread over more than three years to help the cash-strapped country deal with its chronic economic issues.

“Building on the economic stability achieved under the 2023 Stand-by Arrangement (SBA), IMF staff and the Pakistani authorities have reached a staff-level agreement on a 37-month Extended Fund Facility Arrangement (EFF) of about $7 billion,” the global lender said in an overnight statement, confirming the much-awaited deal subject to the approval by the IMF’s Executive Board.

The Washington-based lender further said the new programme aims to support the authorities’ efforts to cement macroeconomic stability and create conditions for stronger, more inclusive, and resilient growth in the cash-strapped country.

“This includes steps to strengthen fiscal and monetary policy and reforms to broaden the tax base, improve State Owned Enterprises’ (SOE) management, strengthen competition, secure a level playing field for investment, enhance human capital, and scale up social protection through increased generosity and coverage in the Benazir Income Support Programme (BISP),” it read.

The International Monetary Fund also stated that continued strong financial support from Pakistan’s development and bilateral partners would be critical for the programme to achieve its objectives.

An IMF team led by Nathan Porter, IMF’s Mission Chief to Pakistan, held discussions with the Pakistani side during the May 13-23, 2024, staff visit to Islamabad.

According to the statement, the new programme aims to capitalise on the hard-won macroeconomic stability achieved over the past year by furthering efforts to strengthen public finances, reduce inflation, rebuild external buffers and remove economic distortions to spur private sector-led growth.

About 10 million people at risk of slipping into poverty in Pakistan: World Bank

Under the deal, Pakistan has agreed to increase tax revenues through measures of 1 and a half per cent of GDP in FY25 and three per cent of GDP over the programme.

“Revenue collections will be supported by simpler and fairer direct and indirect taxation, including by bringing net income from the retail, export, and agriculture sectors properly into the tax system,” it said.

The statement said the federal and provincial governments agreed to re-balance spending activities, and at the same time, the provinces will take steps to increase their tax-collection efforts, including in sales tax on services and agricultural income tax.

The latest agreement is the country’s latest turn to the global lender for help in propping up its economy and dealing with its debts through big bailouts. Earlier this year, the IMF approved the immediate release of the final $1.1 billion tranche of a $3 billion bailout to Pakistan.

Finance Minister Muhammad Aurangzeb said the government planned to seek a long-term loan to help stabilise the economy after the end of that bailout package.

The deal was announced just two weeks after Pakistan approved a tax-laden budget for the 2024-25 fiscal year with the approval of the IMF.

Analysts said the new budget of about $68 billion — up from $50 billion in the last fiscal year — was aimed at qualifying for a long-term IMF loan of $6 billion to $8 billion to help stabilise the economy. Pakistan in 2023 nearly defaulted on the payment of foreign debts.

New Delhi:

The International Monetary Fund (IMF) released an Artificial Intelligence Preparedness Index (AIPI) Dashboard on their website on Tuesday, tracking 174 economies globally for AI readiness.   

The Index has categorised each country into Advanced Economy (AE), Emerging Market Economy (EM), and Low-Income Country (LIC). Singapore (0.80), Denmark (0.78), and the United States (0.77) are among the highest-rated AEs, with India categorised as an EM with a 0.49 rating. India ranks 72 in a total of 174 countries, with Bangladesh (0.38) on 113, Sri Lanka (0.43) on 92, and China (0.63) on 31.     

The rating for each country is given based on the assessment of readiness in four key areas – digital infrastructure, human capital and labour market policies, innovation and economic integration, and regulation.

Earlier this year, the IMF published a blog based on their research paper on 14 January, stating that AI could endanger 33 percent of jobs in AEs, 24 percent in EMs, and 18 percent in LICs. Overall, 40 percent of the jobs around the world will be affected by AI, replacing some and complimenting others.

“On the brighter side, it also brings enormous potential to enhance the productivity of existing jobs for which AI can be a complementary tool and to create new jobs and even new industries,” says Economist Giovanni Melina, in the IMF article from Tuesday.

“Under most scenarios, AI will likely worsen overall inequality, a troubling trend that policymakers can work to prevent. To this end, the dashboard is a response to significant interest from our stakeholders in accessing the index. It is a resource for policymakers, researchers, and the public to better assess AI preparedness and, importantly, to identify the actions and design the policies needed to help ensure that the rapid gains of AI can benefit all,” wrote Melina.

Representational image only.
| Photo Credit: AFP

Pakistan has decided to seek a rollover of around $12 billion debt from key allies such as China in the 2024-25 fiscal year to meet a whopping $23 billion worth of gap in its external financing as the federal government aims to achieve budget targets before the expected arrival of an IMF team to the cash-strapped country.

According to the Finance Ministry insiders, $5 billion from Saudi Arabia, $3 billion from the UAE and $4 billion from China will be rolled over, adding that the estimate of further new financing from China would also be included in the next financial year’s budget, The Express Tribune newspaper reported.

Pakistan will receive more than $1 billion from the International Monetary Fund (IMF) under the fresh loan programme, whereas new financing from the World Bank and Asian Development Bank has also been included in the estimated budget.

According to the Finance Ministry sources, new loan programme agreements will be made with financial institutions. The federal government aims to achieve budget targets before the anticipated arrival of the IMF review mission in Pakistan.

Negotiations for a new loan programme with the global lender are expected to commence in mid-May ahead of the budget which will be presented in June. The Finance Ministry sources said the Ministries had been instructed to complete the targets before the negotiations on the new loan programme.

They added that the details would be given to the IMF delegation when all the important targets were met. It has also been decided to have the budget strategy paper approved by the federal Cabinet before the IMF review mission arrives in the country.

According to the sources, the Finance Ministry has started preparing the budget to set the targets for debt repayment, defence budget and tax collections. Besides, the development and ongoing budget targets will also be determined, according to the paper.

Pakistan has been suffering the chronic ailment of how to meet external liabilities. Traditionally, it depended on remittances, export proceeds and foreign loans to meet its liabilities. But exports haven’t increased to match the imports and avenues of foreign aid have gradually dried up, putting pressure on the Rupee and essential imports.

Last year, it narrowly avoided default due to a timely short-term loan agreement with the International Monetary Fund which provided $3 billion during nine months. The country is once again looking towards the global lender to provide a fresh loan to keep it moving.

In the trying economic conditions, Pakistan has been heavily supported by the remittances its workers living and working around the globe send. The country received the second-highest remittances of the ongoing 2023-24 fiscal at $2.8 billion in April 2024.

According to the State Bank of Pakistan (SBP), the remittances increased by 3.5% to $23.8 billion cumulatively in the first 10 months of FY24 compared to the same period last year.

Remittance inflows during April 2024 were primarily sourced from Saudi Arabia ($712 million), the United Arab Emirates ($542.3 million), the United Kingdom ($403.2 million) and the United States of America ($329.2 million), according to the bank.

The remittances earlier had peaked near $3 billion in the prior month of March 2024, marking a 23-month high.

Separately, the Dawn newspaper reported that Pakistan is engaging with the Chinese leadership for the revival of more than 1800-megawatt of hydropower projects (HPPs) and investment from fresh Chinese companies in the country’s transmission and distribution network as part of the second phase of the China-Pakistan Economic Corridor (CPEC).

The authorities are trying to convene a meeting of the Joint Cooperation Committee (JCC) of the Cabinet on May 22-23 so that Prime Minister Shehbaz Sharif’s upcoming visit to Beijing early next month will be a success.

A high-level delegation led by Planning Minister Ahsan Iqbal is currently in China to pursue existing investors and financial institutions and tap into more firms in the transmission and distribution network as part of CPEC’s second phase.

In his meeting, Mr. Iqbal sought China’s continued cooperation in the early implementation of the Azad Pattan and Kohala hydropower projects. The two sides agreed to hold the next round of the Joint Working Group meeting on Energy (JEWG) soon.

Pakistan Finance Minister Muhammad Aurangzeb. File
| Photo Credit: Reuters

Pakistan has formally sought a bailout package in the range of $6-$8 billion with the possibility of augmentation through climate financing from the IMF, a media report said on April 20.

Cash-strapped Pakistan also requested to dispatch the International Monetary Fund (IMF) review mission next month to firm up details of the next bailout package for three years under the Extended Fund Facility (EFF). However, the exact size and timeframe of the new package will only be determined after evolving consensus on the major contours of the next programme in May 2024, Geo News reported from Washington.

A high-level Pakistani delegation led by Finance Minister Muhammad Aurangzeb is currently visiting Washington to attend the annual spring meetings of the IMF/World Bank.

Although Pakistani authorities are pitching a rosy picture of the economy, the IMF in its latest Regional Economic Outlook (REO) released by Middle East and Central Asia (ME and CA) said the cash-strapped country’s external buffers deteriorated, mostly reflecting ongoing debt service, including Eurobond repayments.

“Where inflationary pressures persist, monetary policy should remain tight and follow a data-dependent approach (Egypt, Kazakhstan, Pakistan, Tunisia, Uzbekistan), while closely monitoring risks of a reversal of inflation developments,” it added.

After contracting in 2023, growth in Pakistan is projected to rebound to 2% in 2024, supported by continuing positive base effects in the agriculture and textile sectors.

Meanwhile, Finance Minister Aurangzeb told the World Bank in Washington that with the reform agenda fully implemented in key areas, Pakistan’s economy has the potential to grow to $3 trillion by 2047.

Implementing structural reforms

Pakistan’s current $3 billion arrangement with the IMF runs out in late April and the government is seeking a longer and bigger loan to help bring permanence to macroeconomic stability and an umbrella under which the country can execute structural reforms.

The IMF however emphasised that prioritising reforms to revitalise the Pakistani economy outweighs the size of the new loan package being negotiated.

IMF Managing Director Kristalina Georgieva speaks during a press briefing at the International Monetary and Financial Committee (IMFC) plenary session at the IMF and World Bank’s 2024 annual Spring Meetings in Washington, U.S., April 19, 2024.
| Photo Credit: Reuters

Shareholders of the International Monetary Fund agreed on the importance of addressing challenges faced by low-income countries, many of which are facing unsustainable debt burdens, IMF Managing Director Kristalina Georgieva said on April 19.

Multiple reports from the IMF and the World Bank this week sounded the alarm about economic developments and prospects in low-income developing countries, which are still grappling with the aftermath of the Covid-19 pandemic and other shocks.

The IMF lowered its 2024 growth forecast for low-income countries as a group to 4.7% from an estimate of 4.9% in January. In a separate report, the World Bank said half of the world’s 75 poorest countries were experiencing a widening income gap with the wealthiest economies for the first time this century in a historical reversal of development.

Ms. Georgieva said the IMF was working to reinforce its ability to support low-income countries hit hardest by recent shocks, including through a 50% quota share increase and by adding resources to its Poverty Reduction and Growth Trust.

Ms. Georgieva and Saudi Arabia’s Finance Minister Mohammed Al-Jadaan, who chairs the IMF’s steering committee, said internal reforms adopted by the IMF this week should help make the debt restructuring process speedier and smoother.

Also read: Explained | Understanding IMF bailouts

Impact of high debt levels on low-income countries

Ms. Georgieva, in a meeting of the Global Sovereign Debt Roundtable hosted by the IMF and the World Bank this week, said there was progress on setting timelines for debt restructurings and ensuring comparability of treatment for various creditors.

She said high debt levels posed a huge burden for low-income countries, including many in Sub-Saharan Africa, where countries face debt service payments of 12% on average, compared to 5% a decade ago. High interest rates in advanced economies have lured away investments, and raised the cost of borrowing.

“What is heartbreaking is that in some countries debt payments are up to 20% of revenues,” she said, adding that this meant those countries had far fewer resources to invest in education, health, infrastructure and jobs. Affected countries needed to increase their domestic revenues by raising taxes, continuing to fight inflation, paring back spending and developing local capital markets, she said.

The Bulgarian economist said it was vital for these countries to make themselves more attractive to investors, and said the IMF was engaging with countries to help them do that.

U.S. Treasury Undersecretary Jay Shambaugh raised concerns about the situation facing low-income countries last week, warning China and other emerging official creditors against free-riding by curtailing loans to low-income countries just as the IMF or multilateral development banks were pouring funds in. Almost 40 countries saw external public debt outflows in 2022, and the flows likely worsened in 2023, he said.

International Monetary Fund (IMF) logo. Representational image
| Photo Credit: Reuters

The recent remarks of Krishnamurthy Subramanian, Executive Director at the International Monetary Fund, about India’s growth figures does not represent the views of the IMF and were in his role as India’s representative at the global body, the IMF has said.

“The views conveyed… by Mr. Subramanian were in his role as India’s representative at the IMF,” Julie Kozack, IMF spokesperson, told reporters here on Thursday.

She was responding to a question on recent remarks by Mr. Subramanian, in which he projected a growth rate of 8% for India, which is different from the last growth rate projections by the IMF.

Mr. Subramanian, at a event in New Delhi on March 28, had said Indian economy could grow at 8% till 2047, if the country redoubles the good policies that it has implemented over the last 10 years and accelerate reforms.

“So, the basic idea is that with the kind of growth that India has registered in the last 10 years, if we can redouble the good policies that we have implemented over the last 10 years and accelerate the reforms, then India can grow at 8% from here on till 2047,” he had said.

The IMF spokesperson clarified, “We do have an Executive Board. That Executive Board is made up of executive directors who are representatives of countries or groups of countries, and they make up the Executive Board of the IMF. And that’s distinct, of course, from the work of the IMF staff.”

The IMF would be updating its World Economic Outlook in the next couple of weeks. “But our growth projections as of January were for medium term growth of 6.5%, and that was a slight upward revision relative to October. Again, we will be presenting the latest forecast in just a couple of weeks,” Mr. Kozack said.

This handout photo released by Sri Lankan Prime Minister’s Office on March 27, 2024 shows Sri Lanka’s PM Dinesh Gunawardena (left) with Chinese President Xi Jinping, before a meeting in Beijing.
| Photo Credit: AFP

China has said it would continue to support Sri Lanka, as the crisis-hit island nation’s Prime Minister on March 30 wrapped up a visit to Beijing to try to finalise a debt restructuring deal.

Prime Minister Dinesh Gunawardena arrived in China on Monday for a visit that included meeting President Xi Jinping and an appearance at the Boao Forum, a high-profile international meeting.

Sri Lanka’s years-long economic crisis was high on the agenda during Mr. Gunawardena’s trip, with China accounting for around 10% of the South Asian country’s total foreign debt.

China is willing to “continue supporting its financial institutions to actively negotiate with Sri Lanka, maintain friendly communication with other creditors, play a positive role in the International Monetary Fund, assist Sri Lanka in financial relief,” Beijing’s Foreign Ministry said in the Chinese version of a joint bilateral statement released on March 29.

The two sides agreed to “make every effort to promote the Port City Colombo and Hambantota Development Project, turning them into flagship projects of the Sino-Sri Lankan joint construction of the ‘Belt and Road'”, the statement said, referring to Xi’s massive Belt and Road global infrastructure initiative.

The southern sea port of Hambantota was considered among the white-elephant projects launched by former president Mahinda Rajapaksa, who ruled the country for a decade until 2015.

Rajapaksa borrowed heavily from China for projects that many criticised as a debt trap that led to the worst economic crisis in Sri Lanka’s history. Unable to repay a huge loan taken from China in 2017 to build Hambantota port, Sri Lanka handed it over to the state-owned China Merchants Group for $1.12 billion on a 99-year lease.

Sri Lanka defaulted on its $46 billion external debt in April 2022 after it ran out of foreign exchange to finance even essential imports such as food, fuel and medicine. It secured a $2.9 billion International Monetary Fund (IMF) bailout last year, with the programme conditional on a debt deal that satisfies foreign creditors.

China had agreed “in principle” to restructure Sri Lanka’s debt in December, but neither Colombo nor Beijing had given details and the two are yet to finalise an agreement. Sri Lanka’s government said in January that a foreign debt restructure would be finalised by the beginning of April.

Dinesh Gunawardena. File
| Photo Credit: AP

Sri Lankan Prime Minister Dinesh Gunawardena arrived at Beijing on March 25 for a six-day official visit during which he will hold talks with Chinese President Xi Jinping and Premier Li Qiang on ways to further deepen bilateral ties.

“Mr. Gunawardena was received on his arrival by Chinese Vice-Foreign Minister and former Ambassador to India Sun Weidong,” Chinese official media reported.

This will be the first visit by a Sri Lankan leader to Beijing after Colombo put a moratorium on recurring visits by Chinese research ships to Hambantota port, reportedly due to India’s security concerns. Colombo’s move had drawn angry reactions from China.

Earlier this month, however, Sri Lanka said it would allow foreign offshore research ships for replenishments at its ports despite a one-year ban on such vessels.

Some of China’s infrastructure investments in Sri Lanka drew global concerns over Beijing’s debt diplomacy especially after China took over Hambantota port on a 99-year debt swap.

Mr. Gunawardena’s visit also comes days after the International Monetary Fund (IMF) reached a staff-level agreement with Sri Lanka for the next phase that would enable it access to $337 million from the nearly $3 billion bailout approved in 2023 for the cash-strapped country.

In 2022, Sri Lanka announced a default on over $51 billion foreign loans, following which India pitched in with about $4 billion in assistance to enable the island nation to recover from a deep economic crisis.

According to Sri Lanka’s official data, China tops the list of its creditors with 43% followed by Japan with 23% and India with 15%.

The International Monetary Fund (IMF) has released a report highlighting the world’s poorest countries based on GDP per capita adjusted for purchasing power parity (PPP). While GDP is a measure of a country’s total economic output, PPP takes into account the cost of living, providing a more accurate picture of living standards, according to The Forbes.

The report paints a stark picture, with South Sudan ranking as the poorest country globally, with a GDP per capita PPP of just $492.72. The world’s youngest nation, which gained independence in 2011, faces significant challenges due to political instability, ongoing conflicts, and limited infrastructure.

Country	GDP Per Capita
1: South Sudan	$492.72
2: Burundi	$936.42
3: Central African Republic (CAR)	$1,140.00
4: Democratic Republic of the Congo (DRC)	$1,570.00
5: Mozambique	$1,650.00
6: Malawi	$1,710.00
7: Niger	$1,730.00
8: Chad	$1,860.00
9: Liberia	$1,880.00
10: Madagascar	$1,990.00

Following South Sudan are Burundi ($936.42), the Central African Republic ($1,140.00), the Democratic Republic of the Congo ($1,570.00), and Mozambique ($1,650.00). These countries share common struggles, including political instability, internal conflicts, inadequate infrastructure, and dependence on rain-fed agriculture, making them vulnerable to climate shocks and food insecurity.

The report also explores the cases of Malawi ($1,710.00), Niger ($1,730.00), Chad ($1,860.00), Liberia ($1,880.00), and Madagascar ($1,990.00). These countries, primarily located in Sub-Saharan Africa, grapple with limited resources, rapid population growth, and heavy reliance on agriculture, leaving them susceptible to poverty.

The report serves as a call to action for the international community to address the root causes of poverty in these nations. Investing in infrastructure, promoting economic diversification, and fostering political stability are crucial steps towards a brighter future for these countries.

In 2024, Yemen emerges as the Asian nation grappling with the most severe economic challenges, exhibiting a GDP per capita estimated at $2,136. However, the accuracy of this figure remains elusive due to persistent conflicts disrupting precise economic assessments.

Conversely, Luxembourg claims the title of the world’s wealthiest nation in terms of GDP per capita, boasting a staggering $145,834 in GDP per capita PPP. Meanwhile, India registers a GDP per capita (PPP) of $9.89 thousand as of 2024, reflecting its position within the global economic landscape.

Pakistan’s Prime Minister Shehbaz Sharif (L).
| Photo Credit: AFP

Pakistan’s new Prime Minister Shehbaz Sharif has ordered “immediate” talks with the IMF for an extended fund facility for his cash-strapped country, saying that improving the state of the economy would be the top priority of his government which has received the “mandate”.

In January, Pakistan received over $700 million second tranche from the International Monetary Fund (IMF) under the existing $3 billion Stand-by Arrangement (SBA) agreed towards June last year when Pakistan was slowly drifting towards default.

Pakistan has not completed the last $6.5 billion IMF bailout package, and therefore, the first task of the new government will be to sit with the Washington-based global lender to get the last loan tranche of $1.2 billion.

The official handle of the Pakistan Muslim League (PML-N) president on Monday posted in Urdu on X that a few hours after the swearing-in of Prime Minister Sharif, a meeting was held regarding “the restoration of the country’s economy”. He was briefed by the finance secretary on the occasion.

The prime minister directed to “immediately proceed” with the talks with the IMF regarding the Extended Fund Facility, it said.

Mr. Sharif directed to prepare an action plan on an emergency basis to restore the economic situation.

“We have got the mandate to improve the economy of the country and that is the top priority of our government. Our government will work hard to promote investment in the country and provide facilities to the business community,” he said.

Mr. Sharif’s Pakistan Muslim League-Nawaz (PML-N) came second in the February 8 elections. However, his party, along with the Pakistan Peoples Party (PPP) formed a coalition government with the help of several other parties to deny jailed former prime minister Imran Khan’s Pakistan Tehreek-e-Insaf (PTI) to return to power even though independents backed by him won the maximum number of seats in Parliament.

As part of his administration’s efforts to bring back the country’s economy on track, Mr. Sharif said loss-making government-owned enterprises will be privatised so that these organisations do not become a burden on the country’s economy.

“Government size will be reduced and institutions that are no longer needed should either be merged or closed down,” he said.

Mr. Sharif directed also decided to set up a committee to formulate a clear strategy for reducing the perks of members of government boards.

He also ordered the relevant authorities to prepare an action plan for the transition of power and gas sectors to smart metering to “help reduce line losses”.

All banks and financial institutions should develop strategies for the promotion of small and medium enterprises to help the youth of the country to stand on their own feet, the prime minister said.

He assured to further strengthen the Special Investment Facilitation Council, saying it is a very important step towards economic stability. The prime minister also ordered tax refunds of Rs 65 billion.

“Taxpayers who are working to increase domestic exports and value addition in the country’s economy are the crown of our heads, we pay tribute to them,” Mr. Sharif said.

Noting that automation is inevitable to bring transparency in the Federal Board of Revenue, the prime minister said work on automation of FBR and other institutions should be started immediately.

Mr. Sharif was sworn in on Monday as Pakistan’s 24th Prime Minister, taking over the reins of the cash-strapped country for a second time since 2022, amidst staggering economic and security challenges.