ISLAMABAD: The International Monetary Fund (IMF) has reached an agreement with Pakistan on a staff-level pact for a $3 billion stand-by arrangement. This decision comes after a long wait for Pakistan, which is on the verge of default and facing a severe balance of payments crisis with declining foreign exchange reserves.
The $3 billion funding, which will be spread over nine months, is higher than anticipated for Pakistan. The country had been expecting the release of the remaining $2.5 billion from a $6.5 billion bailout package agreed upon in 2019, which expired recently.
The new stand-by arrangement builds upon the 2019 program and aims to address the economic challenges faced by Pakistan. These challenges include devastating floods, commodity price hikes resulting from the war in Ukraine, policy missteps, and constraints on the foreign exchange market. These factors have led to stalled economic growth, high inflation (especially for essential items), low foreign reserves, and liquidity issues in the power sector.
The staff-level agreement between the IMF and Pakistan will support immediate efforts to stabilize the economy, preserve macroeconomic stability, and provide a framework for financing from various partners. The agreement will also create room for social and development spending through improved domestic revenue mobilization and careful spending execution to address the needs of the Pakistani people.
The IMF emphasizes the importance of steadfast policy implementation by Pakistan, including fiscal discipline, a market-determined exchange rate, progress on reforms (particularly in the energy sector), and improvements in climate resilience and the business climate.
The approval of the agreement by the IMF board is still pending, and the budget execution and implementation of the agreed policies will be crucial for the success of the program.
Government officials in Pakistan have expressed gratitude for securing the IMF deal and plan to hold a press conference to inform the nation about the agreement. Experts have noted that Pakistan could have avoided the recent negotiations and uncertainty by implementing fiscal policy steps earlier.
The Finance Minister has mentioned that a staff-level agreement for the IMF bailout deal was very close and expected within the next 24 hours. While $4 billion has already been released, the government is working on unlocking the remaining $2.5 billion under the IMF program.
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