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The International Monetary Fund (IMF) has agreed to provide $US3 billion ($4.52 billion) to Pakistan — a long-awaited relief to bail out the impoverished country's ailing economy.
- The bailout must still be approved by the IMF's executive board
- Pakistan's economy has faced several external shocks, such as the catastrophic floods in 2022
- The country was also hit by an international commodity price spike in the wake of Russia's war in Ukraine
The nine-month agreement must be approved by the IMF's executive board, which is expected to make a final decision in mid-July, according to the IMF's mission chief to Islamabad.
Nathan Porter said Pakistan's economy had faced several external shocks, such as the catastrophic floods in 2022 that killed 1,739 people, caused $US30 billion in damage and impacted millions of Pakistanis.
The country was also hit by an international commodity price spike in the wake of Russia's war in Ukraine.
The IMF official said despite authorities' efforts to reduce imports and the trade deficit, reserves had declined to very low levels and liquidity conditions in the power sector remained acute.
"Given these challenges, the new arrangement would provide a policy anchor and a framework for financial support from multilateral and bilateral partners in the period ahead," Mr Porter said.
He said over the past few days, the Pakistani authorities had "taken decisive measures to bring policies more in line with the economic reform program supported by the International Monetary Fund", including passing a revised budget in parliament.
The proposed package is greater than what Pakistan was expecting.
The country was awaiting the release of the remaining $US2.5 billion from a 2019 bailout package of $US6.5 billion that expired on Friday.
There were a lot of uncertainties about what would happen after June, especially with a new government coming to power in a few months, prominent economist Mohammad Sohail said.
"Now this funding of $US3 billion for nine months will definitely help restore some investors' confidence," Mr Sohail, who is head of Topline Securities, said.
The deal between the IMF and Pakistan comes after Prime Minister Shehbaz Sharif spoke with Kristalina Georgieva, the managing director of the IMF, on Tuesday.
The two also met on June 22 on the sidelines of a global finance meeting in Paris.
On Friday, Mr Sharif tweeted that the arrangement would help strengthen Pakistan's foreign exchange reserves, enable the country to achieve economic stability, and put the country on the path of sustainable economic growth.
Talks between Pakistan and the IMF had stalled in December after the global lender delayed the release of a crucial tranche of $US1.1 billion from the bailout originally signed in 2019 by Mr Sharif's predecessor, Imran Khan.
Pakistan and the IMF have been at odds over what the fund says is Islamabad's unsatisfactory compliance with the bailout conditions.
Pakistan says it has fully complied with the conditions.
The cash-strapped Pakistani government is struggling to avoid a default with financial help from friendly countries such as China, Saudi Arabia and the United Arab Emirates.
It has also been embroiled in an unprecedented economic crisis since Mr Sharif replaced Mr Khan, who was ousted in a no-confidence vote in Parliament last year.
AP