Pakistan: IMF approves $3 billion bailout

The International Monetary Fund (IMF) approved a $3 billion (€2.7 billion) rescue package for Pakistan on Wednesday.

The decision follows months of negotiations with the South Asian country, which has faced severe economic challenges and the prospect of default. Pakistan is facing an acute balance of payments crisis with central bank reserves that could only cover a month of controlled imports, and it was also hit by devastating floods last year.

What did the IMF say about the deal?

The IMF Executive Board said the aid “aims to support immediate efforts to stabilize the economy and hedge against shocks, while creating space for social development spending to help the people of Pakistan.”

Aid will be spread over nine months, with around $1.2 billion being disbursed immediately.

The IMF said Pakistan was facing “a difficult external environment, devastating floods and policy mistakes that led to large fiscal and external deficits, rising inflation and erosion of reserve buffers in FY23”.

Pakistan received initial approval for aid in June.

The IMF urged Pakistan to raise consumer energy prices, abandon exchange controls, improve tax collection and tighten monetary policy. The central bank is expected to raise its benchmark interest rate to a record 22% and the government is expected to raise $1.39 billion in new taxes.

The organization also said it wanted Islamabad to make further progress on structural reforms, especially in the energy sector, state-owned enterprises and climate resilience.

The bailout had been on hold since December, when the IMF refused to release $1.1 billion of the loan because of the country’s non-compliance with a 2019 deal signed under the previous government led by former Prime Minister Imran Khan.

Imran Khan’s government was overthrown in a no-confidence vote in April 2022.

Bailout gives Pakistan ‘fiscal space’ to move forward

Prime Minister Shehbaz Sharif said the bailout “strengthens Pakistan’s economic position to overcome immediate to medium-term economic challenges”.

He said the funds gave the “next government the fiscal space to chart the way forward”.

The Pakistani head of government said the deal was reached against “the heaviest of odds” and “against [a] seemingly impossible deadline.”

Sharif’s coalition government is expected to face a national election later this year.

Islamabad has also recently received support from Saudi Arabia and the United Arab Emirates, which have provided US$3 billion in the past two days.

Over the past three months, China has rolled over $5 billion in loans to save the country from default.

Credit rating agency Fitch upgraded Pakistan’s sovereign debt rating by one notch to CCC from CCC- on Monday. That agency says it perceives “substantial credit risk” with “a real possibility” of default on this rating.

sdi/msh (dpa, Reuters.AP)