Pakistan's Economy Gets A Breather As IMF Approves $3 Billion Bailout Package

The International Monetary Fund (IMF) has approved the release of $3 billion saving Pakistan's embattled economy from default.

A staff-level agreement was reached between Pakistan and the IMF, subject to approval by the IMF board in July. Under this agreement, the $3 billion will be released over a period of nine months.

A press release by the IMF stated, "The IMF staff and the Pakistani authorities have reached a staff-level agreement on policies to be supported by a Stand-By Arrangement (SBA)."

"The new SBA will support the authorities’ immediate efforts to stabilise the economy from recent external shocks, preserve macroeconomic stability and provide a framework for financing from multilateral and bilateral partners,” the statement added.

“The new SBA will also create space for social and development spending through improved domestic revenue mobilization and careful spending execution to help address the needs of the Pakistani people," IMF further said.

Earlier in 2019, Pakistan had agreed to a $6.5 billion IMF bailout package, from which about $3.5 billion was released. The IMF had, however, stopped the release of the rest $2.5 billion until Pakistan met some IMF conditions.

This approval took more than eight months to materialise, offering Pakistan's economy much-needed respite from the balance of payment crisis and depleted foreign exchange reserves.

The approval package of $3 billion, on the other hand, is $500 million dollars more than the remaining $2.5 billion which will help Pakistan avoid default.

"The new stand-by arrangement builds on the 2019 programme," an IMF official Nathan Porter said adding that, "Pakistan's economy had faced several challenges in recent times, including devastating floods last year and commodity price hikes following the war in Ukraine."

As a result of these shocks and some policy missteps, economic growth has stalled.

“As a result of these shocks as well as some policy missteps — including shortages from constraints on the functioning of the FX market — economic growth has stalled. Inflation, including for essential items, is very high,” Porter said.

"The new arrangement would provide a policy anchor and a framework for financial support from multilateral and bilateral partners in the period ahead,” Porter added.

Just two weeks ago, Pakistan's all-weather friend, China, also provided a $1 billion loan to Pakistan, providing much-needed breathing room for foreign exchange reserves, which were just $3.9 billion.