Pakistan has successfully reached a staff-level agreement with the International Monetary Fund (IMF) for a funding package of $3 billion (£2.4 billion). Marking a crucial step forward in addressing the severe economic crisis in Pakistan. However, the deal still requires approval from the IMF’s board, following an eight-month delay.
The South Asian nation is currently grappling with its most significant economic challenges since gaining independence from Britain in 1947. Pakistan’s economy was already struggling due to years of financial mismanagement. It has been further pushed to the brink by a global energy crisis and devastating floods that struck the country last year.
To secure the IMF deal, Pakistan’s central bank recently raised its primary interest rate to 22%. This move was aimed at demonstrating the government’s commitment to stabilizing the economy and implementing necessary reforms.
Nathan Porter, the IMF’s mission chief for Pakistan, highlighted the multiple external shocks that have impacted the country. Including the catastrophic floods in 2022 that affected millions of people and an international commodity price spike triggered by Russia’s conflict in Ukraine. Porter also acknowledged certain policy missteps that have contributed to the economic slowdown.
The staff-level agreement, once approved by the IMF’s Executive Board, is expected to provide much-needed relief to Pakistan’s economy. The board is set to review the agreement in the coming weeks. The $3 billion funding will be disbursed over nine months, surpassing initial expectations.
The funding agreement is particularly crucial as Pakistan was awaiting the release of the remaining $2.5 billion from a $6.5 billion bailout package. That was agreed upon in 2019 and expired recently. With foreign exchange reserves at a critically low level, covering less than three weeks of imports. Pakistan has dire need of financial assistance to stabilize its economy.
Crucial Relief: Addressing Pakistan’s Low Foreign Exchange Reserves
The nation, home to over 230 million people, has witnessed tumultuous events in recent months, further impacting its economic stability. Deadly clashes between supporters of former Prime Minister Imran Khan and the police have rattled financial markets. In May, Imran Khan was arrested on corruption charges. A move that has since been deemed illegal by the country’s Supreme Court.
Over the past year, the Pakistani rupee has depreciated by approximately 40% against the US dollar, adding further strain to the country’s economic woes.
In a separate development, the international community has pledged more than $9 billion in aid to help Pakistan recover from the devastating floods that ravaged the country in 2022. However, the estimated cost of recovery from the disaster exceeds $16 billion, highlighting the ongoing challenges faced by Pakistan.
As Pakistan awaits the final approval of the IMF board, the staff-level agreement offers hope for addressing the immediate economic crisis. And implementing reforms to stimulate growth and stability in the nation’s economy.