Cliffhanger: IMF approves Pak’s $3bn loan program; may be considered in two weeks
Virendra Pandit
New Delhi: Almost bankrupt Pakistan, facing a default on July 1, has clinched initial approval from the International Monetary Fund (IMF) for a USD 3 billion loan program, lowering the risk of a sovereign default, the media reported on Friday.
The staff-level agreement is subject to approval by the IMF Executive Board, with its consideration expected by mid-July, the Washington-based lender said in a statement on its website.
Pakistan is one of the IMF’s biggest customers, with almost two dozen bailouts since the 1950s.
The funds are expected to support Islamabad’s immediate efforts to stabilize the economy from recent external shocks, preserve macroeconomic stability and provide a framework for financing from multilateral and bilateral partners, the global lender said.
Bowing to the IMF’s tough terms and conditions for a bailout, Pakistan agreed to raise taxes and cut spending in a dramatic effort to secure aid. Islamabad needs the loan to overcome a dollar crunch, ease supply shortages, and lift the economy out of a crisis ahead of national elections scheduled later this year.
Steadfast policy implementation, including greater fiscal discipline, a market-determined exchange rate, and further progress on reforms, particularly in the energy sector is key to overcoming Pakistan’s current challenges, the IMF said.
“It will be important that the budget is executed as planned, and the authorities resist pressures for unbudgeted spending or tax exemptions in the period ahead,” said IMF mission chief Nathan Porter.
Pakistan faces about USD 23 billion of external debt service for the fiscal year 2024, which begins in July, more than six times the nation’s foreign exchange reserves.
Given its very weak reserves, Islamabad could default without an IMF loan, Moody’s Investors Service warned early this month. Pakistan is the last of three South Asian countries to clinch IMF funding because of delays in delivering reforms and getting creditors to agree amid the ongoing political crisis.
Pakistan increased taxes and energy prices and allowed its currency to weaken to meet the IMF’s key demands. The Pakistani rupee has lost more than 20 percent this year after officials devalued the currency in January, among the worst performers in the world.
Its dollar stockpile slid almost 60 percent in the past 12 months to USD 3.5 billion as of mid-June, restricting the nation’s ability to fund imports, including raw materials, and forcing many factories to suspend operations.
The nine-month stand-by arrangement builds on the authorities’ efforts under Pakistan’s 2019 IMF-supported program which expires on Friday (June 30).
The Shehbaz Sharif government secured staff approval for a USD 1.1 billion loan in August 2022, only to have it halted because of Islamabad’s failure to meet some conditions.
