WASHINGTON: IMF Reaches Deal with Pakistan for $1.3 Billion Arrangement, Approves First Review of Bailout Program
The International Monetary Fund (IMF) announced on Tuesday that its staff has reached an agreement with Pakistan on a new $1.3 billion arrangement and approved the first review of the country’s ongoing 37-month bailout program. The agreement marks a significant milestone as Pakistan continues its efforts to stabilize its economy amidst global challenges.
The IMF commended Pakistan for making notable progress in restoring macroeconomic stability and rebuilding investor confidence despite a difficult global environment over the past 18 months. The Fund emphasized that Pakistan’s economic resilience, particularly in the face of challenges like inflation and geopolitical instability, has been commendable.
The new 28-month deal will not only support Pakistan’s broader economic goals but also focus on addressing climate change adaptation and mitigation efforts. The IMF stated that climate-related challenges are a growing concern for Pakistan and emphasized the importance of enhancing disaster resilience through targeted investments and policy reforms.
However, both the new program and the loan review still require approval from the IMF’s Executive Board, which is typically a formality.
Inflation and Economic Outlook
Pakistan’s finance ministry has projected that inflation will remain steady in March, expected to range between 1% and 1.5%. This follows a significant slowdown in inflation to its lowest level in nearly a decade the previous month. Inflation had peaked at around 40% in May 2023, but it has since dropped significantly, contributing to improved economic conditions.
Upon approval by the IMF Board, Pakistan will gain access to approximately $1 billion under the Extended Fund Facility (EFF), bringing total disbursements under the program to around $2 billion. The finance ministry expressed confidence in the success of the government’s policies, particularly in the areas of taxation, energy, and state-owned enterprises (SOEs), which align with the IMF’s structural reform agenda.
Finance Minister Muhammad Aurangzeb, speaking to Geo News from China, reiterated Pakistan’s commitment to pursuing reforms that will ensure sustainable growth and improve the country’s export potential.
Economic Stability Amidst Challenges
Pakistan’s economy, valued at $350 billion, has shown signs of stability thanks to a $7 billion IMF bailout that helped avert a default. While growth remains modest, inflation has dropped to its lowest level since 2015, financial conditions have improved, sovereign risk premiums have decreased, and external balances are stronger, according to the IMF.
Despite these positive developments, the IMF warned of ongoing risks, including geopolitical shocks to commodity prices, tightening global financial conditions, and rising protectionism. These factors could potentially undermine the stability Pakistan has achieved, according to the IMF’s statement.
Climate Change and Structural Reforms
The IMF also highlighted the urgent need for Pakistan to continue its fiscal consolidation efforts, reduce public debt, and implement reforms in line with the broader goals of macroeconomic stability. In particular, the IMF emphasized the need to address climate risks through strategic public investment in disaster resilience and water resource management, as well as promoting green mobility to reduce pollution and improve public health.
Nathan Porter, the IMF mission chief, underscored the importance of maintaining the progress made over the past 18 months, particularly in strengthening public finances, ensuring price stability, and rebuilding external reserves. The program’s success will also rely on improving the efficiency of public investment processes at all levels of government, improving intergovernmental coordination on disaster financing, and enhancing climate-related financial transparency.
Looking Ahead
As Pakistan continues to execute the IMF-supported program, the government remains focused on its long-term goals of achieving private sector-led, inclusive growth. The commitment to climate adaptation and improved public financial management will be key components in building a more resilient and sustainable economy moving forward.