The International Monetary Fund (IMF) has announced a new deal worth $3 billion, offering temporary relief for Pakistan’s mounting foreign debt. The struggling economy has been grappling with a balance-of-payments crisis exacerbated by the burden of external debt and a prolonged period of political instability, which has deterred foreign investment..
The nation has experienced a sharp rise in inflation, with the rupee hitting a historic low against the dollar. As a result, Pakistan has been struggling to afford imports, leading to a significant decline in industrial output.
Late Thursday, IMF official Nathan Porter released a statement declaring, “I am pleased to announce that the IMF team has reached a staff-level agreement with the Pakistani authorities on a nine-month standby arrangement in the amount of SDR 2,250 million (equivalent to approximately $3 billion).”
The agreement is subject to approval by the IMF’s executive board and is expected to be considered by mid-July, according to Porter. The proposed amount represents 111 percent of Pakistan’s IMF quota.
Negotiations between Pakistan and the IMF for the final tranche of a $6.5 billion bailout package, initially agreed upon in 2019, stalled in November of last year. The government made last-minute adjustments to the national budget in an attempt to meet the deal’s requirements. The existing package is set to expire on Friday, and the newly announced agreement builds upon the IMF’s previous efforts.
Pakistan’s Prime Minister, Shehbaz Sharif, welcomed the deal but cautioned that it should not be considered a panacea for the nation’s challenges. “This is not a moment of pride, but a moment to reflect on reality. Can nations survive on loans? Let us pray that this is the last time we have secured a loan from the IMF and that we do not need to approach them again,” he stated during a media briefing in Lahore following the signing of the agreement.
Sharif characterized his recent meetings with IMF Managing Director Kristalina Georgieva in Paris as a “turning point” in a series of discussions with the international organization.
Finance Minister Ishaq Dar expressed his delight by tweeting, “AlhamdoLillah!” (meaning “praise be to God”). He later emphasized that the delay in reaching the deal was mainly due to a gap in external financing assurances.
Michael Kugelman, director of the South Asia Institute at the Wilson Center, criticized Pakistan’s slow progress in meeting the IMF’s requirements for an agreement. In a tweet, he said, “Islamabad waited until the very final hour to take the (politically risky) fiscal policy steps that the IMF had been hoping to see for months.”
Years of financial mismanagement, compounded by the COVID-19 pandemic, a global energy crisis resulting from Russia’s invasion of Ukraine, and devastating floods that submerged a third of the country in 2022, have pushed Pakistan’s economy to its limits.
The grim economic data left the government with limited options to introduce measures that would attract voters ahead of the upcoming October election.
In order to unlock further funds, the IMF had stipulated that Pakistan needed to secure additional external financing, eliminate numerous populist subsidies, and allow the rupee to float freely against the dollar.
Mohammed Sohail, chief of Topline Securities, expressed optimism that the IMF loan would restore investor confidence. “This new program exceeds our expectations. There were numerous uncertainties about what would happen after June 2023, as a new government will come to power,” he remarked.