IMF releasing first tranche of $6bn loan package for Pakistan

With an eased debt burden and inflation that has slightly slowed, Islamabad still wrestles with big economic challenges.

Reza Baqir, Governor of the State Bank of Pakistan, takes a question from a reporter during a news conference in Karachi,
Amidst fiscal uncertainty, Reza Baqir, the governor of the State Bank of Pakistan, has tried to strike a monetary balance with higher interest rates that keep inflation in check but also put a damper on economic growth [Akhtar Soomro/Reuters]

Pakistan‘s fiscal deficits are narrowing, the International Monetary Fund (IMF) said on Friday as it announced it would release the first tranche of its $6bn financial assistance programme to the country.

The IMF agreed to the three-year rescue package for Pakistan in April – its 13th bailout programme for the South Asian nation since the late 1980s – as the economic outlook for the country of 208 million people worsened.

“Completion of the review will enable disbursement of SDR 328 million [$450m worth of Special Drawing Rights] and will help unlock significant funding from bilateral and multilateral partners,” Ernesto Ramirez Rigo, head of the IMF mission to Islamabad, said in a statement after the mission completed its first programme review.

“The government policies have started to bear fruit, helping to reserve the buildup of vulnerabilities and restore economic stability. The external and fiscal deficits are narrowing, inflation is expected to decline and growth, although slow, remains positive,” the IMF statement said.

The mission was in Islamabad from October 28 to November 8.

The IMF said Pakistan’s near-term economic outlook was broadly unchanged from the time of the programme’s approval in April, with gradually strengthening activity and average inflation expected to decelerate in the 2020 fiscal year.

However, domestic and international risks remain, and structural economic challenges persist, it said.

“Positive for Pakistan! IMF Mission concludes successfully. IMF confirms that Pakistan met all First Quarter Performance Criteria by good margins and economy continuing to get better. Thank you PM and entire team!,” Abdul Hafeez Shaikh, finance adviser to Pakistan’s prime minister, said in a tweet on Friday night.

Pakistan has lifted interest rates over the past year to tame high inflation – which eased to 11.04 percent in October from 11.37 percent in September. But last month, the central bank governor, Reza Baqir, signalled an extended pause on rate hikes.

The government of Prime Minister Imran Khan, who took power in August, obtained temporary relief from close allies – such as China and Saudi Arabia – with short-term loans worth more than $10bn to buffer foreign currency reserves and ease debt pressures on the country’s current account.

But analysts had called an IMF bailout inevitable, as Pakistan faced an increasing fiscal crunch.

Source: Reuters