IMF announces Stand-by deal of $3billion with Pakistan

Pakistan is on the verge of finalizing a vital bailout agreement of $3billion with the International Monetary Fund (IMF) as it grapples with a severe balance-of-payments crisis and struggles to repay its overwhelming external debt.

The nation has experienced a prolonged period of political turmoil, causing potential foreign investors to withdraw. Finance Minister Ishaq Dar has revealed that Pakistan is in the process of reaching a staff-level agreement with the IMF, which includes the crucial disbursement of a $1.1 billion loan. This loan is part of the ninth review of a $6.5 billion Extended Fund Facility provided by the IMF.

Pakistan, on the verge of default, has finally received a staff-level agreement from the International Monetary Fund (IMF) for a $3 billion standby arrangement. The long-awaited decision provides a glimmer of hope for the South Asian nation, which has been grappling with a severe balance of payments crisis and diminishing foreign exchange reserves.

The agreement, however, is still pending approval from the IMF board, scheduled for July. This development follows an eight-month delay and offers a temporary relief to Pakistan in its ongoing financial struggles.

Mr. Nathan Porter, leading an International Monetary Fund (IMF) staff delegation, conducted both in-person and virtual meetings with Pakistani authorities to explore the possibility of a fresh financing arrangement for Pakistan through an IMF Stand-by Arrangement (SBA).

Why Pakistan needs this deal

Pakistan is currently experiencing its most severe economic crisis in decades, characterized by soaring inflation and foreign exchange reserves that are only sufficient to cover a limited period of controlled imports. Analysts warn that without the IMF agreement, the country could have potentially plunged into a debt default.

To overcome its existing difficulties, Pakistan must prioritize unwavering policy implementation, which entails fostering fiscal discipline, adopting a market-driven exchange rate to withstand external pressures, and advancing reforms, particularly in the energy sector.

These reforms are crucial not only for enhancing climate resilience but also for enhancing the business environment and overall economic conditions.

Pakistan will receive a funding of $3 billion, which is higher than anticipated. This financial assistance will be disbursed over a period of nine months. Previously, the country had been awaiting the release of the remaining $2.5 billion from a $6.5 billion bailout package agreed upon in 2019, which expired on Friday.

Pakistan PM Shehbaz Sharif with IMF Managing Director Kristalina Georgieva in Paris, France.

How this deal will help Pakistan

The recently agreed Standby Arrangement (SBA) aims to assist the government in stabilizing the economy in the face of recent external shocks. It is designed to uphold macroeconomic stability and establish a framework for receiving financial support from both multilateral and bilateral partners.

Additionally, the SBA will enable the allocation of funds towards social and developmental initiatives by enhancing domestic revenue generation and implementing careful spending practices, thereby addressing the pressing needs of the Pakistani population.

Steps taken by the Pakistan Government

Apart from the substantial commitments made at the Conference on Climate Resilient Pakistan in January 2023, the authorities have concentrated their efforts on obtaining fresh funding and ensuring the extension of debt payments. These measures are aimed at supporting immediate policy initiatives and replenishing gross reserves to achieve a more comfortable level.

The government’s program also encompasses ongoing endeavours to enhance the sustainability of the energy sector, including an annual rebasing in FY24, as well as improving the governance of state-owned enterprises and reinforcing the public investment management framework. These initiatives include projects aimed at enhancing resilience to the effects of climate change.

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