The board of the International Monetary Fund authorized a $3 billion rescue program for Pakistan, which would begin disbursing funds right away for economic stabilization in the struggling South Asian region, the lender said on Wednesday.
Last month, Pakistan and the Fund came to a staff level agreement, reaching a short-term arrangement that provided more funding than anticipated for the 230 million-person nation, which was experiencing a severe balance of payments problem and had just enough central bank reserves to cover just one month’s worth of restricted imports.
Before distributing the first tranche, the board’s consent was required; the remaining funds would follow later in installments.
The IMF executive board “approved a 9-month Stand-By Arrangement (SBA) for Pakistan for an amount of SDR2,250 million (about $3 billion, or 111 per cent of quota) to support the authorities’ economic stabilization program,” the lender said in a statement.
It said Pakistan faced “a difficult external environment, devastating floods and policy missteps have led to large fiscal and external deficits, rising inflation and eroded reserve buffers in FY23.”
After eight months of difficult negotiations about budgetary restraint, a compromise was reached that provided a lifeline for Pakistan, which had been on the verge of default.
The government’s attempts to stabilize the economy and attain macroeconomic stability, according to Prime Minister Shehbaz Sharif, have advanced significantly as a result of the bailout. “It strengthens Pakistan’s economic position to overcome short- to medium-term economic obstacles, giving the next government the fiscal space to map the way forward,” he added.
Sharif described it as a milestone that was attained despite “the heaviest of odds & against seemingly impossible deadline.”
This year’s national elections are scheduled for Sharif’s coalition administration, and in order to appease the IMF, more challenging fiscal discipline measures must be implemented. As the average Pakistani struggles with an inflation rate of roughly 29%, the government raised 385 billion rupees ($1.39 billion) in new taxes, and the central bank increased its policy interest rate to a record high of 22%.
