The executive board of the International Monetary Fund (IMF) approved a $3 billion bailout program for Pakistan on Wednesday, according to the lender, which will immediately provide $1.2 billion in assistance.
To help the nation’s financial difficulties, the IMF and Pakistan came to a Standby Arrangement on June 29.
“The Executive Board of the International Monetary Fund approved a 9-month Stand-By Arrangement (SBA) for Pakistan for an amount of SDR2,250 million (about $3 billion, or 111 per cent of quota) to support the authorities economic stabilization program,” the global lender said in a statement.
The agreement, according to the statement, comes at a difficult time for Pakistan’s economy. “A difficult external environment, devastating floods and policy missteps have led to large fiscal and external deficits, rising inflation and eroded reserve buffers in FY23.”
The press release stated that the new program would provide a policy anchor to Pakistan for addressing “domestic and external imbalances” and a framework for financial support from multilateral and bilateral partners.
IMF Bailout Program Focuses On
“The program will focus on
(1) implementation of the FY24 budget to facilitate Pakistan’s needed fiscal adjustment and ensure debt sustainability while protecting critical social spending
(2) a return to a market-determined exchange rate and proper FX market functioning to absorb external shocks and eliminate FX shortages
(3) an appropriately tight monetary policy aimed at disinflation; and (4) further progress on structural reforms, particularly with regard to energy sector viability, SOE governance, and climate resilience,” the IMF added.
Additionally, it stated that the executive board approval permitted an immediate disbursement of $1.2 billion, with the remainder to be phased in over the course of the program – subject to two quarterly reviews.
The United Arab Emirates (UAE) and Saudi Arabia each made deposits of $1 billion and $2 billion with the State Bank of Pakistan, increasing the country’s foreign exchange reserves, which led to the IMF’s acceptance.
The $3 billion in payment, spread out over nine months, is more than Pakistan was anticipating. Previously, the nation was waiting for the release of the final $2.5 billion of a $6.5 billion rescue package that was agreed upon in 2019 but expired in June 2023.
The acceptance of the $3 billion agreement, according to Prime Minister Shehbaz Sharif, was a “major step forward” in the government’s attempts to stabilize the economy and establish macroeconomic stability.
The approval of Stand-by Agreement of $3 billion by the IMF’s Executive Board a little while ago is a major step forward in the government’s efforts to stabilise the economy and achieve macroeconomic stability. It bolsters Pakistan’s economic position to overcome immediate- to…
— Shehbaz Sharif (@CMShehbaz) July 12, 2023
“It bolsters Pakistan’s economic position to overcome immediate- to medium-term economic challenges, giving the next government the fiscal space to chart the way forward,” he stated.
The premier said the “milestone”, which he claimed was achieved “against the heaviest of odds” and against a “seemingly impossible deadline”, could not have been possible without “excellent team effort”.
Ishaq Dar, meanwhile, expressed appreciation and claimed that “things are now moving in the right direction”—a goal the government had been pursuing for the previous few months.
“Our 2019-2022 program, which was extended for a year […] we were expecting $1.19bn in the 9th review and the rest was supposed to lapse,” he said.
Ishaq Dar recalled that the standby agreement with the lender consumed the majority of the government’s efforts. “Thankfully, our efforts were successful and for this, we had to impose taxes.”
“I have tried that by the end of the [government’s] tenure — preferably by the end of July — the national reserves are between $14bn and $15bn,” the finance minister said, asserting that Pakistan was headed in a favorable direction now.
“All these reforms that we have brought are in the interest of Pakistan and they should remain intact. It will also be our utmost priority to ensure that this becomes the second program that is completed by Pakistan,” Dar added.
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