According to Reuters, the International Monetary Fund (IMF) and Pakistan have reached a staff-level agreement on the first review of a $3 billion bailout, paving the way for the release of $700 million in funding for the country.
Prior to securing the bailout in July, Pakistan had to adhere to a series of measures stipulated by the IMF, including revising its budget, raising its policy rate, and hiking electricity and natural gas prices.
The $700 million to be released represents the second tranche of the bailout, contingent on approval from the IMF’s executive board.
“Upon approval around $700 million (SDR 528 million) will become available bringing total disbursements under the program to almost $1.9 billion,” said Nathan Porter, IMF Pakistan mission chief in a statement.
An IMF mission led by Porter, which spent two weeks in Pakistan for technical and policy talks, wrapped up its visit on Wednesday. It assessed whether Pakistan was meeting the benchmarks set under the standby arrangement agreed in July, which saw the immediate disbursement of an initial $1.2 billion to help the South Asian economy stave off a sovereign debt default.
Pakistan was in the throes of a severe balance of payment crisis, with foreign exchange reserves depleted to just three weeks of controlled imports, coupled with historically high inflation and an unprecedented currency devaluation.
Under the terms of the bailout deal, the IMF also required Pakistan to raise $1.34 billion in new taxation to achieve fiscal adjustments. An offshoot of these measures was a record high inflation of 38% year-on-year in May, the highest in Asia, which still stands at over 30%.
“Inflation is expected to decline over the coming months amid receding supply constraints and modest demand,” the IMF stated, cautioning that Pakistan would remain susceptible to significant external risks, including heightened geopolitical tensions, rising commodity prices, and further tightening in global financial conditions.
“The agreement supports the authorities’ commitment to advance the planned fiscal consolidation, accelerate cost-reducing reforms in the energy sector, complete the return to a market-determined exchange rate, and pursue state-owned enterprise and governance reforms to attract investment and support job creation, while continuing to strengthen social assistance,” the IMF’s statement added.
It said that a nascent recovery anchored by the stabilization policies under the programme was underway.
(Additional reporting by Kanjyik Ghosh and Jyoti Narayan; Editing by Christian Schmollinger, Tom Hogue, Toby Chopra and Alexander Smith)
