In a major development for Pakistan's economy, the International Monetary Fund (IMF) approved a much-awaited $3bn bailout for the nation on July 12. This decision is expected to prevent Pakistan from defaulting on its debt repayments and provide crucial support to its economic stabilization program.
The approval by the IMF's executive board comes after recent meetings between Pakistani officials, including Prime Minister Shehbaz Sharif and Finance Minister Ishaq Dar, and the IMF. The agreement entails the release of the funds over a nine-month period.
In a statement, the IMF acknowledged the challenging economic circumstances facing Pakistan, including a difficult external environment, devastating floods, and policy missteps that resulted in fiscal and external deficits, rising inflation, and depleted reserve buffers in the fiscal year 2023.
Prime Minister Shehbaz Sharif expressed his appreciation for the IMF's decision, stating that it represents a significant step forward in the government's efforts to stabilize the economy and achieve macroeconomic stability. He emphasized that the bailout will provide the next government with fiscal space to navigate the way forward.
“This milestone, which was achieved against the heaviest of odds & against seemingly impossible deadline, could not have been possible without excellent team effort,” Prime Minister Shehbaz Sharif stated.
The approval of the IMF bailout marks a breakthrough after months of delay. The funds had been put on hold since December due to Pakistan's lack of compliance with a 2019 agreement signed between the IMF and former Prime Minister Imran Khan.
A breakthrough was announced recently after Sharif met with IMF head Kristalina Georgieva in Paris at the Summit for a New Global Financing Pact to discuss the revival of the $6bn bailout package amid shrinking foreign exchange reserves and increasing inflation, which resulted in an increase in food costs.
The economic crisis in Pakistan has been a priority for Sharif since assuming power following Khan's ousting in a no-confidence vote in April 2022. The country's economy suffered a major setback last summer when devastating floods caused significant loss of life, destruction of homes, and extensive damage amounting to $30bn.
Pakistan requires a substantial amount of funds to repay its foreign loans with interest, estimated at least $20bn over the next two years. However, earlier this year, the country's foreign exchange reserves dropped to less than $4bn, which covered only four weeks' worth of import bills, leading Pakistan to restrict imports in an attempt to save foreign currency.
The approval of the IMF bailout comes on the heels of financial assistance from Saudi Arabia and the United Arab Emirates. Saudi Arabia recently deposited $2bn into Pakistan's central bank, while the United Arab Emirates also deposited $1bn. These contributions, coupled with the IMF loan, are expected to help Pakistan address its economic challenges.
Analysts believe that the approval of the IMF bailout could pave the way for support from other international financial institutions. In the past few months, Pakistan has received financial aid from China, Saudi Arabia, and the United Arab Emirates to avoid defaulting on its debt payments.
Finance Minister Ishaq Dar expressed optimism about Pakistan's economic prospects, stating that the country's economy is now back on the path of growth. He highlighted the expectation that Pakistan will be in a much stronger position when the ruling Pakistan Muslim League party completes its tenure next month. Prime Minister Sharif also emphasized the government's aim to generate domestic funds to avoid future reliance on IMF loans.
The approval of the IMF bailout is seen as a positive development for Pakistan's economy and provides a much-needed boost to its efforts toward stability and growth.
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