The much-anticipated $3 billion bailout for Pakistan was approved by the International Monetary Fund on Wednesday, according to the global lender, preventing the country from missing its debt payments.
According to the IMF, the agreement to disburse the money over a period of nine months in support of Pakistan's economic stabilization package was agreed by the executive board.
The plan was approved by Pakistan and the IMF less than two weeks ago after discussions with the prime minister, shehbaz sharif, the finance minister, ishaq dar, and other officials.
“The arrangement comes at a challenging economic juncture for Pakistan. A difficult external environment, devastating floods, and policy missteps have led to large fiscal and external deficits, rising inflation, and eroded reserve buffers” in the fiscal year 2023, the IMF said in a statement.
In a statement released later, IMF chief Kristalina Georgieva stated that "Pakistan’s economy was hit hard by significant shocks last year, notably the spillovers from the severe impacts of floods, the large volatility in commodity prices, and the tightening of external and domestic financing conditions.”
According to her, Pakistan would have the chance to recover macroeconomic stability and resolve imbalances through the consistent application of policy if the $3 billion bailout were "implemented faithfully" by Pakistan.
Sharif instantly hailed the IMF's decision as a major milestone in the government's attempts to stabilize the economy.
“It bolsters Pakistan’s economic position to overcome immediate to medium-term economic challenges, giving the next government the fiscal space to chart the way forward,” he said in a tweet. “This milestone, which was achieved against the heaviest of odds & against a seemingly impossible deadline, could not have been possible without an excellent team effort.”
Since the country had not complied with a 2019 agreement that the IMF and former Prime Minister Imran Khan had signed, the IMF had refused to disburse a crucial $1.1 billion portion of the loan, putting the bailout on hold.
A breakthrough was recently declared during a meeting between Sharif and Georgieva at the Summit for a New Global Financing Pact in Paris to talk about the renewal of the $6 billion rescue package in the face of declining foreign exchange reserves and rising inflation, which increased the price of food.
Since taking office following Khan's ouster in a vote of no-confidence in parliament in April 2022, Sharif has been attempting to resolve the economic situation. The terrible floods that struck Pakistan this summer, which claimed 1,739 lives, damaged 2 million homes and inflicted $30 billion in damage, came as a significant shock to the country's economy.
"Things are now moving in the right direction," the finance minister Dar stated Wednesday.
Analysts estimate that Pakistan will require at least $20 billion over the next two years to repay its foreign debts plus interest. Foreign exchange reserves, meanwhile, decreased to less than $4 billion early this year. Even though Pakistan restricted some imports to save money, this money was only enough to pay the import bill for four weeks.
The IMF loan was approved a day after Saudi Arabia deposited $2 billion into Pakistan's central bank. According to Dar, the United Arab Emirates also made a $1 billion deposit at the central bank on Wednesday.
Analysts claim that Pakistan will benefit from the IMF bailout's approval since it may inspire other international financial organizations to assist Islamabad in overcoming its economic difficulties. China has contributed money to prevent a Pakistani default on debt payments in addition to Saudi Arabia and the United Arab Emirates.