Islamabad, June 30, 2023: Pakistan has secured a crucial $3 billion bailout package from the International Monetary Fund (IMF) as the country grapples with economic challenges and external shocks.
The IMF announced on Friday that it had reached a staff-level agreement with Pakistani authorities, subject to approval by the IMF Executive Board, which is expected by mid-July.
The Stand-By Arrangement (SBA) under the new agreement aims to support Pakistan’s immediate efforts to stabilize its economy in the face of recent external shocks. It also aims to preserve macroeconomic stability, provide a framework for financing from multilateral and bilateral partners, and create room for social and development spending. The agreement emphasizes the importance of steadfast policy implementation, including fiscal discipline, a market-determined exchange rate, and progress on reforms in the energy sector to promote climate resilience and improve the business climate.
Porter, who led the IMF mission, expressed his satisfaction with the outcome, stating, “I am pleased to announce that the IMF team has reached a staff-level agreement with the Pakistani authorities on a nine-month Stand-By Arrangement (SBA) in the amount of SDR2,250 million (about $3 billion or 111 percent of Pakistan’s IMF quota).” He acknowledged the economic challenges Pakistan has faced, including the catastrophic floods in 2022 and international commodity price spikes due to the conflict in Ukraine.
The agreement comes at a crucial time for Pakistan, with economic growth stagnating, inflation soaring, and reserves declining to very low levels. The country has also been grappling with liquidity issues in the power sector, with mounting circular debt and frequent load shedding. The new SBA will serve as a policy anchor and facilitate financial support from multilateral and bilateral partners.
Prior to reaching this agreement, the Pakistani authorities had taken several important actions, including the approval of the fiscal year 2024 budget, which aims to support fiscal sustainability and revenue mobilization while enabling increased social and development spending. The State Bank of Pakistan (SBP) has also withdrawn guidance on import prioritization and is committed to ensuring a fully market-determined exchange rate. Efforts to mobilize financial support from multilateral institutions and bilateral partners have been ongoing.
The success of the program hinges on the full and timely implementation of its policies. The IMF team commended the Pakistani authorities for their open and constructive dialogue and collaboration throughout the negotiations.
The IMF bailout package will provide a much-needed boost to Pakistan’s economy, enabling the government to address immediate challenges and work towards long-term stability. It is expected to bolster investor confidence and strengthen Pakistan’s position in the global financial landscape.