The International Monetary Fund (IMF) and Pakistan have reached a staff-level agreement on a stand-by arrangement worth $3 billion, announced the lender. This decision has been eagerly anticipated by Pakistan, a South Asian nation that is on the verge of default.
The approval of the IMF board, expected in July, is required to finalise the deal. After an eight-month delay, this agreement brings some relief to Pakistan, which is currently grappling with a severe balance of payments crisis and dwindling foreign exchange reserves.
The funding of $3 billion, which will be disbursed over a period of nine months, surpasses initial expectations. Pakistan had been awaiting the release of the remaining $2.5 billion from a $6.5 billion bailout package that was initially agreed upon in 2019, and which expired on Friday. As a result, the country’s stock and currency markets remained closed on that day.
According to IMF official Nathan Porter, the new stand-by arrangement builds upon the 2019 programme. Porter acknowledged the significant challenges faced by Pakistan’s economy in recent times, including devastating floods last year and rising commodity prices following the war in Ukraine.
He stated, “Despite the authorities’ efforts to reduce imports and the trade deficit, reserves have declined to very low levels. Liquidity conditions in the power sector also remain acute.” Porter further emphasised that the new arrangement would serve as a policy anchor and a framework for financial assistance from both multilateral and bilateral partners in the foreseeable future.
Porter also highlighted the acute liquidity conditions in the power sector, characterised by mounting arrears and frequent power outages. Reforming the energy sector, which has accumulated a debt of nearly 3.6 trillion Pakistani rupees ($12.58 billion), has been a pivotal aspect of the discussions between Pakistan and the IMF.
