The IMF has approved a $3 billion loan for Pakistan.
ISLAMABAD: The International Monetary Fund’s (IMF) Executive Board authorized $3 billion for Pakistan under a nine-month Stand-by Arrangement (SBA) as a temporary measure to avoid default on Wednesday.
Soon after Pakistan received $3 billion in new deposits from the Kingdom of Saudi Arabia and the United Arab Emirates (UAE), the IMF approved a $3 billion rescue package, of which $1.2 billion would be distributed in the next few days. The IMF has imposed four primary criteria, including budget execution for 2023-24, tightening of monetary policy, guaranteeing a market-based currency rate, and additional progress on structural reforms, notably in the energy sector, SOE governance, and climate resilience.
Previously, Pakistan received another $1 billion deposit from the UAE when Prime Minister Shehbaz Sharif visited the nation in January of this year, during which the UAE’s reigning highness agreed to deliver a $1 billion deposit, which has now been fulfilled.
Pakistan failed to finish the last IMF program, known as the Extended Fund Facility (EFF), and could only complete the eighth review out of a total of eleven reviews. The IMF and Pakistan then suspended the SBA program for nine months in order to avoid default, as Islamabad was required to repay $23 billion in foreign debt payments in the current fiscal year.
The IMF refused to accept the disputed 0.3% GDP growth figure from the previous fiscal year. According to a table provided alongside the announcement, the GDP decreased by 0.5% in the fiscal year just finished. The IMF forecasts 2.5% GDP growth and a 25.9% annualized inflation rate for the current fiscal year.
According to IMF figures, unemployment reached 8.5% in the latest fiscal year, up from 6.2% the previous year. It predicted that the unemployment rate will fall to 8% this fiscal year.
Pakistan engaged in a new IMF program only after it was unable to obtain additional financial assistance from China, Saudi Arabia, or the United Arab Emirates (UAE). These friendly countries recommended Pakistan initially seek IMF assistance in order to keep on track with reforms.
Following the collapse of the last $6.5 billion plan in June, Islamabad inked a new staff-level agreement with the IMF for a nine-month SBA.
According to an IMF press release released on Wednesday, Pakistan’s economic reform plan intends to assist urgent measures to stabilize the economy and defend against shocks while generating space for social and development expenditure to benefit the people of Pakistan.
Consistent policy execution will be important for Pakistan and the program’s success. This will need more fiscal discipline, a market-determined exchange rate to absorb external pressures, and continued progress on the energy sector, climate resilience, and business climate reforms.
The IMF Executive Board authorized a 9-month SBA for Pakistan in the sum of SDR2,250 million (about $3 billion, or 111% of the quota) to assist the government’s economic stabilization policy.
The agreement comes at a difficult time for Pakistan’s economy. According to the announcement, a tough external environment, terrible floods, and policy mistakes have resulted in substantial fiscal and external deficits, increasing inflation, and eroding reserve buffers in FY23.
According to the IMF, Pakistan’s new SBA-supported plan would serve as a policy anchor for correcting internal and foreign imbalances, as well as a framework for financial assistance from multilateral and bilateral partners.
According to the IMF, the plan will focus on implementing the fiscal 2023-24 budget in order to enable Pakistan’s essential fiscal adjustment and guarantee debt sustainability while safeguarding important social expenditures.
Pakistan’s new SBA-backed plan would serve as both a policy foundation for correcting domestic and external imbalances and a framework for international and bilateral financial assistance. The program will focus on
(1) implementing the FY24 budget in order to facilitate Pakistan’s needed fiscal adjustment and ensure debt sustainability while protecting critical social spending
(2) reverting to a market-determined exchange rate and proper FX market functioning in order to absorb external shocks and eliminate FX shortages
(3) an appropriately tight monetary policy aimed at disinflation and
(4) further progress on structural reforms, particularly in the energy sector.
Previously, Pakistan received an additional $1 billion from the UAE, and its foreign exchange reserves grew by $3 billion in only two days, going from $4.5 billion to $7.5 billion. The Kingdom of Saudi Arabia (KSA) and the United Arab Emirates (UAE) delivered $3 billion in deposits to the State Bank of Pakistan (SBP) ahead of the International Monetary Fund’s (IMF) executive board meeting in Washington D.C. to release a $3 billion Stand-y Arrangement (SBA). By the end of the week, the SBP’s foreign exchange reserves would have risen to $8.6 billion.
According to the minister, the KSA deposited $2 billion with the SBP, increasing reserves by $3 billion in just two days. Insha-Allah, the enhanced amount of SBP reserves will be reflected in the central bank’s July 14 statistics, he added. I am grateful to the UAE on behalf of Prime Minister Shehbaz Sharif, Chief of Army Staff Syed Asim Munir, and the Pakistani nation, for always standing firm behind Pakistan in difficult times.
He said that the UAE demonstrated its goodwill with Pakistan by contributing $1 billion in deposits. He stated that during the PM’s recent quick visit to the UAE, it was repeated that the Emirates will release a $1 billion deposit very soon. The same communication was given through the COAS, therefore he had confirmation from both the PM and the COAS about the fulfillment of the $1 billion deposit, he continued.
Separately, Prime Minister Shehbaz Sharif said on Wednesday that the IMF Executive Board’s acceptance of a $3 billion stand-by agreement (SBA) is a significant step forward in the government’s efforts to stabilize the economy and achieve macroeconomic stability.