IMF finally okays $3bn Pakistan bailout

The International Monetary Fund (IMF) has granted approval for a long-awaited $3 billion bailout package to Pakistan, which will help the South Asian nation avoid defaulting on its debt obligations.

In a statement released on Wednesday, the IMF announced that its executive board has given the go-ahead for a nine-month standby arrangement to support Pakistan’s economic stabilisation program. This decision follows a staff-level agreement reached between the fund and Pakistan last month. As a result of the approval, an initial disbursement of approximately $1.2 billion will be made immediately.

Pakistan has been grappling with a balance-of-payments crisis, struggling to manage its burdensome external debt amid a challenging political environment that followed the ousting of Prime Minister Imran Khan from office last year. The country has faced soaring inflation, a record-low value of the rupee against the dollar, and difficulties in financing imports, resulting in a significant decline in industrial output.

Less than two weeks ago, Pakistan and the IMF reached an agreement on the nine-month plan after a series of meetings involving Prime Minister Shehbaz Sharif, Finance Minister Ishaq Dar, and other officials. The IMF acknowledged the challenging economic situation faced by Pakistan, attributing it to an adverse external environment, devastating floods, and policy missteps, which have contributed to fiscal and external deficits, inflationary pressures, and diminished reserve buffers.

Prime Minister Sharif expressed his appreciation for the IMF’s decision, considering it a significant stride in the government’s efforts to stabilise the economy and achieve macroeconomic stability. He stated that the bailout strengthens Pakistan’s economic position, enabling the next government to navigate the immediate and medium-term economic challenges while creating fiscal space for charting the path forward.

Since assuming power in April 2022 after Khan’s removal through a no-confidence vote, Sharif has been working to address the economic crisis. Last year, Pakistan also faced the devastating impact of floods that resulted in loss of life, destruction of homes, and substantial financial damage.

Pakistan has previously entered into nearly two dozen agreements with the IMF, many of which were not completed. In the days leading up to the recent approval, Pakistan received $3 billion in deposits from Saudi Arabia and the United Arab Emirates, bolstering its foreign reserves to $7.5 billion, more than double the balance from the previous week.