International Monetary Fund (IMF) on Wednesday (12 July), approved a $3 billion bailout package for Pakistan, providing a much needed relief to Pakistan's depleting foreign reserves.
The IMF in a press release stated, "The Executive Board of the International Monetary Fund approved a nine-month stand-by arrangement (SBA) for Pakistan for an amount of $3 billion to support the authorities’ economic stabilisation program."
The Pakistani economy will immediately get a fund infusion of $1.2 billion, while the rest $1.8 billion will be released after two quarterly reviews.
In late June 2023, Pakistan reached a staff-level agreement with IMF, for the release of $3 billion over a period of nine months, subject to approval by the IMF board in July.
With this new announcement, the IMF board has now approved the $3 billion package.
The IMF press release highlighted that 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 FY23.
Regarding the IMF board approval, IMF managing director Kristalina Georgieva said, “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."
"The authorities’ new stand-by arrangement, implemented faithfully, offers Pakistan an opportunity to regain macroeconomic stability and address these imbalances through consistent policy implementation,” Georgieva added.
Earlier in 2019, Pakistan had agreed to a $6.5 billion IMF bailout package, from which about $3.5 billion was released.
The IMF had, however, stopped the release of the rest $2.5 billion until Pakistan met tough IMF conditions. This approval took more than eight months to materialise. It is, however, $500 million dollars more than the remaining $2.5 billion which will help Pakistan avoid default.
With this IMF package Pakistan becomes the fourth biggest debtor of IMF surpassing Ecuador, with a total debt of $10.4 billion. Currently, the country ranks fifth.
Pakistan's economy has been in a downward spiral for many years, causing immense hardship for the impoverished population. Uncontrolled inflation has made it nearly impossible for a significant number of people to make ends meet.
Further, in recent times, Pakistan has faced numerous challenges. Devastating floods last year and the resulting increase in commodity prices due to the war in Ukraine have further exacerbated the situation.
This comes even as concerns abound regarding Pakistan's deployment of resources for state-sponsored terrorism, often targeted at India, in spite of its crumbling economic situation.
Editorial Associate at Swarajya. Writes on Indian Military and Defence.
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