Pakistan has reached a staff-level agreement on a new $7 billion loan, the International Monetary Fund said on Friday, the latest move by the country to ask the global lender for help in propping up its economy and tackling its debt with a major bailout.
Earlier this year, the IMF approved the immediate release of the final tranche of $1.1 billion of a $3 billion bailout to Pakistan. Finance Minister Muhammad Aurangzeb said the government planned to seek a long-term loan to stabilize the economy after the bailout package expires.
The new loan agreement will last 37 months. It aims to strengthen fiscal and monetary policies and reforms to broaden the tax base, improve the management of state-owned enterprises, enhance competition, ensure a level playing field for investments, improve human capital and scale up social protection through greater generosity and coverage in a large welfare program, the IMF said.
“The program aims to capitalize on the hard-won macroeconomic stability achieved over the past year by continuing efforts to strengthen public finances, reduce inflation, rebuild external buffers and remove economic distortions to stimulate private sector-led growth,” said Nathan Porter, head of the IMF’s mission in Pakistan.
The agreement still needs to be approved by the IMF’s board of directors.
Pakistan’s new coalition government presented its first budget last month in parliament, promising a rise of up to 25% in government employee salaries and setting an ambitious tax collection target.
The finance minister said Pakistan aims to collect 13 trillion rupees ($44 billion) in taxes, which would be 40% more than in the current fiscal year.
Aurangzeb also said that the government will ensure that the number of taxpayers increases. Only about 5 million people in Pakistan pay taxes.
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 stabilize the economy. Pakistan is close to defaulting on foreign debt payments in 2023.