Pakistan has secured a staff-level agreement with the International Monetary Fund (IMF) for $3bn (£2.4bn) in funding, providing much-needed relief for the crisis-hit nation, BBC reports.
The deal, subject to approval by the IMF's board, comes after an eight-month delay. Pakistan is currently facing its most severe economic crisis since gaining independence from Britain in 1947.
In an effort to secure the agreement, Pakistan's central bank raised its main interest rate to a historic high of 22% on Monday. The country's economy, already struggling due to years of financial mismanagement, has been further strained by a global energy crisis and devastating floods in the previous year.
Nathan Porter, IMF's mission chief for Pakistan, highlighted the external shocks faced by the economy, such as the catastrophic floods and international commodity price spikes. He emphasized the resulting economic stagnation and policy missteps.
The IMF's Executive Board is expected to consider and grant the agreement in the coming weeks, providing Pakistan with much-needed economic breathing room. Analysts urge the country to utilize the deal as an opportunity to transition from immediate relief to long-term recovery. Overcoming challenges such as high inflation, limited foreign reserves, and macroeconomic instability will require sustained fiscal discipline and time.
Pakistan's annual inflation rate hit a record high of nearly 38% in May. The $3bn funding, distributed over nine months, exceeds initial expectations. Pakistan had been awaiting the release of the remaining $2.5bn from a $6.5bn bailout package agreed upon in 2019, which expired recently.
With foreign exchange reserves covering less than three weeks of imports, Pakistan has been grappling to stabilize its economy for years. Deadly clashes between supporters of former Prime Minister Imran Khan and the police have further unsettled financial markets. Imran Khan's arrest on corruption charges in May, subsequently ruled illegal by the country's Supreme Court, has added to the volatility.
Over the past year, the Pakistan rupee has depreciated by approximately 40% against the US dollar. Additionally, international donors have pledged over $9bn to assist Pakistan in recovering from the devastating floods of 2022, although estimates suggest that more than $16bn is required for a complete recovery.
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