IMF Board Approves $700M Tranche Of $3B Loan To Pakistan
he International Monetary Fund (IMF) completed its first review of Pakistan’s $3 billion economic reform program on Thursday, allowing the immediate disbursement of $700 million.
IMF loan
With this latest approval, the total disbursements extended to Pakistan under IMF’s Stand-By Arrangement (SBA) have now reached $1.9 billion, IMF said in a statement Thursday.
The IMF approved a $3-billion bailout package for Pakistan in July 2023, extending up to nine months, with an upfront disbursement of $1.1 billion, adding that the rest would be in instalments.
Thursday’s disbursement aims to return Pakistan to a market-determined exchange rate and proper FX market functioning so that the crisis-ridden economy can buffer external shocks, eliminate FX shortages, and continue rebuilding foreign reserves.
According to the IMF, Pakistan’s gross reserves jumped to $8.2 billion in December 2023, up from $4.5 billion in June, while the exchange rate has been broadly stable. The current account deficit is expected to rise around 1% of gross domestic product (GDP) in 2024 as recovery takes hold.
“There are now tentative signs of activity picking up and external pressures easing,” said Antoinette Sayeh, deputy managing director of the IMF.
However, in the context of pressures, efforts at mobilizing revenues and spending discipline to continue to ensure that the budgeted primary surplus and debt goals remain achievable.
“Going forward, broad-based reforms to improve the fiscal framework are required to create space for further social and development spending,” Sayeh added.
As Pakistan grapples with a deep economic crisis amid other political instabilities, the country reached out to the UAE seeking a $2 billion loan rollover to manage its financial obligations, local media reported Tuesday.
Volatile economy
Macroeconomic conditions have generally improved in Pakistan, according to the IMF’s assessment, projecting a 2% growth for 2024 amid further economic recovery in the second half of the year.
The Pakistan Stock Exchange (PSX) showed a sustained rise in its index between August and December 202, signaling improvement in the economy’s overall health, Pakistan’s Finance Ministry said in a December update.
While inflation remains elevated, appropriately tight policy could could help it ease to 18.5% by end-June, according to the IMF.
Meanwhile, the World Bank said last week that Pakistan must strive for a more dynamic and open economy as the current policies distort markets to benefit a few while preventing productivity growth.
Financial challenges
The currencies of a few developing countries, including Pakistan, depreciated by over 20% in 2023, exacerbating debt sustainability risks, the UN said in a report last week.
The World Bank said that Pakistan’s economy is grappling amid a period of uninterrupted decline in poverty rates, bringing the country to the brink of debt default.
The bank called for “deep, sustained reforms” to repair the economy but added that external financing is riskier and much harder to pull off.
