IMF Approves $3 Billion Bailout for Pakistan
The International Monetary Fund (IMF) has granted a much-anticipated $3 billion bailout program to Pakistan in an effort to address the country’s acute balance of payments crisis and avoid a potential default. The funds will be released over a period of nine months to support Pakistan’s economic stabilization efforts.
According to an IMF statement, the approval comes at a challenging economic juncture for Pakistan, which has been grappling with a difficult external environment, devastating floods, and policy missteps. These factors have resulted in large fiscal and external deficits, rising inflation, and depleted reserve buffers.
Under the agreement, Pakistan will immediately receive $1.2 billion, with the remaining amount being phased in over the duration of the program, subject to quarterly reviews. The program necessitates the implementation of greater fiscal discipline, a market-determined exchange rate, and progress on reforms related to the energy sector, climate resilience, and the business climate.
Prime Minister Shehbaz Sharif welcomed the IMF approval, stating that it is a major step forward in stabilizing Pakistan’s economy and providing the next government with the fiscal space to navigate the way forward. Sharif’s coalition government is set to complete its mandated term next month, with elections scheduled for the fall.
Pakistan has been facing a severe cash crunch, with its foreign exchange reserves plummeting to a historic low of around $4 billion. This amount is only sufficient to cover a few weeks’ worth of controlled imports, falling short of the IMF’s recommended three-month minimum.
The IMF approval is expected to unlock additional bilateral and multilateral external financing for Pakistan. Ahead of the announcement, the United Arab Emirates deposited a $1 billion loan with Pakistan’s central bank to support foreign exchange reserves, while Saudi Arabia provided a $2 billion loan for one year. China, a close ally, also rolled over $5 billion of Pakistan’s debt in the past three months.
To further bolster Pakistan’s foreign exchange reserves, the country’s finance minister, Ishaq Dar, anticipates an escalation to $15 billion by the end of this month.
The IMF bailout had been on hold since last December due to Pakistan’s failure to comply with a 2019 bailout deal between the lender and the government of former Prime Minister Imran Khan.
Overall, this financial assistance from the IMF comes as a much-needed relief for Pakistan, as it strives to overcome economic challenges and stabilize its economy. With the funds in place, the country can now focus on implementing necessary reforms and addressing its fiscal and external deficits, paving the way for a path to recovery.
