KARACHI, The International Monetary Fund (IMF) recently issued its first review report under the Stand-By Arrangement (SBA), expressing satisfaction with Pakistan's economic performance. Following the release of the report, the IMF has disbursed an immediate sum of US$700 million to the country.

According to AKD Securities Limited, the review highlighted Pakistan's success in meeting key quantitative performance criteria (QPCs), indicative targets (ITs), and structural benchmarks (SBs) under the SBA. The authorities emphasized that the success of the program relies on implementing budgeted targets, establishing a market-determined exchange rate, effective functioning of the foreign exchange (FX) market, maintaining tight monetary policy, and progressing on structural reforms, particularly in the energy sector and state-owned enterprise (SOE) governance.

The report noted that Pakistan's Gross Domestic Product (GDP) contracted by 0.19% in FY23, influenced by challenging external conditions, the impact of floods, and uneven policies. However, an improvement in macroeconomic conditions is anticipated, with the country's growth projected at 2.0%/3.5% for FY24/25F. This projection is supported by recoveries in agriculture and industrial sectors, leading to an expected GDP growth of 2.1% YoY in 1QFY24.

In the realm of inflation and monetary policy, the IMF observed that inflation remains high, with the average/year-end Consumer Price Index (CPI) estimated at 24.0%/18.5% for FY24F. Despite the deceleration in reserve money growth, inflationary pressures are expected to persist, particularly due to energy tariff hikes. The IMF expressed satisfaction with the current monetary policy setting at 22% but indicated that a more stringent stance may be necessary if short-term pressures resurface.

Regarding the fiscal sector, the IMF acknowledged the government's success in revenue collection and achieving a primary surplus of PkR401 billion (0.4% of GDP) in 1QFY24. The revenue and expenditure targets under the SBA are on track, with collections from various taxes compensating for softer import-related revenues. The IMF also emphasized the need for further reforms to secure future fiscal targets and align energy subsidies and salary/pension increases with SBA targets.

In terms of the external sector and exchange rate, the IMF noted the recent appreciation of the domestic currency and stressed the need for deeper FX market liquidity and reduction in exchange restrictions. Despite significant risks to debt sustainability, the authorities maintain that the current debt sustainability assessment is adequate, assuming prudent implementation of SBA conditions.

The energy sector remains a focal point, with authorities aiming to align power tariffs and implement reforms in gas pricing and usage. The IMF expressed overall satisfaction with Pakistan's adherence to the SBA program's criteria, targets, and benchmarks and announced the rescheduling of the second review to mid-March 2024.

This detailed review was compiled based on the information and analyses provided by AKD Securities Limited.