Yesterday, the IMF Executive Board announced, pursuant to authority under the IMF’s Emergency Financing Mechanism its approval of Pakistan's $7.6 billion aid request under the terms of a 23-month Stand-By Arrangement, which had been proposed earlier this month. Under the Executive Board’s approval, approximately $3.1 billion becomes available immediately to Pakistan, while “the remaining amount will be phased in, subject to quarterly reviews.”

According to a survey released by the IMF, the 23-month Stand-By Arrangement will enable Pakistan to implement its economic stabilization plan, which “envisages a significant tightening of fiscal and monetary policies to bring down inflation and reduce the external current account deficit to more sustainable levels,” and “seeks to address current macroeconomic balances while protecting the poor and preserving social stability in the South Asian country of 170 million people.”

Mr. Takatoshi Kato, Deputy Managing Director and Acting Chairman of the Executive Board, stated that Pakistan will reduce its fiscal deficit by “phasing out energy subsidies, better prioritizing development spending, and implementing tax policy and tax administration reforms,” while putting in place a “comprehensive and effectively-targeted social safety net in close cooperation with the World Bank.” According to the IMF announcement, the “State Bank of Pakistan (SBP) recently increased its discount rate by 200 basis points to 15 percent, and stands ready to further tighten monetary conditions, as needed,” and the SBP will also pursue a flexible exchange rate policy, “geared toward achieving the program’s reserve targets and smoothing excessive exchange rate volatility.” Finally, Pakistan plans to increase spending by 0.6 percentage point of GDP, to 0.9 percent of GDP, as a means of better targeting social assistance “to provide support for the poor and vulnerable.”