The International Monetary Fund (IMF) has approved a much-awaited $3bn bailout for Pakistan, a move that is likely to help prevent the South Asian country from defaulting on its debt repayments.
In a statement on Wednesday, the IMF said its executive board gave the green light to the nine-month standby arrangement “to support the authorities’ economic stabilisation programme”.
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This follows a staff-level agreement between the fund and Pakistan announced last month. The latest approval allows an immediate disbursement of about $1.2bn.
Pakistan has suffered from a balance-of-payments crisis as it tries to service burdensome external debt amid a fraught political environment after the removal of Prime Minister Imran Khan from office last year.
Inflation has skyrocketed, the rupee has reached a record low against the dollar and the country is struggling to afford imports, causing a severe decline in industrial output.
Wednesday’s announcement comes less than two weeks after Pakistan and the IMF agreed to the nine-month plan following a series of meetings with Prime Minister Shehbaz Sharif, Finance Minister Ishaq Dar and other officials.
“The arrangement comes at a challenging economic juncture for Pakistan. A difficult external environment, devastating floods and policy missteps have led to large fiscal and external deficits, rising inflation and eroded reserve buffers,” the IMF said.
Sharif welcomed the IMF’s decision, saying it was a major step forward in the government’s efforts to stabilise the economy and achieve macroeconomic stability.
“It bolsters Pakistan’s economic position to overcome immediate to medium-term economic challenges, giving the next government the fiscal space to chart the way forward,” he said in a tweet.
The approval of Stand-by Agreement of $3 billion by the IMF's Executive Board a little while ago is a major step forward in the government's efforts to stabilise the economy and achieve macroeconomic stability. It bolsters Pakistan's economic position to overcome immediate- to…
— Shehbaz Sharif (@CMShehbaz) July 12, 2023
Sharif has been trying to overcome the economic crisis since he came to power after Khan was removed in a no-confidence vote in parliament in April 2022. Pakistan’s economy witnessed another shock last year when devastating floods killed 1,739 people, destroyed 2 million homes and caused $30bn in damage.
Pakistan has brokered close to two dozen arrangements with the IMF, most of which have not been completed.
In the days before the decision was approved, Pakistan received $3bn in deposits from Saudi Arabia and the United Arab Emirates.
The money from the two Gulf countries boosted Pakistan’s foreign reserves to $7.5bn, more than double its account balance last week.