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Pakistan secures $3 billion bailout after IMF approval

The IMF will immediately disburse $1.2 Billion to help the South Asian country, the rest will arrive in installments

Pakistan won the IMF’s final approval to secure a $3 billion bailout. The IMF executive board approved a nine-month arrangement that will support the country’s economic stabilisation programme by immediately disbursing $1.2 Billion. The rest of the $1.8 billion will be disbursed by the IMF later in multiple instalments. This will help ease Pakistan’s dire need of cash and also rescue its economy.

Almost a year after Pakistan’s previous bailout package was halted last year due to Islamabad’s failure to meet conditions, Pakistan finally made an all-out effort to secure a bailout in order to avoid a sovereign default which included steps such as increasing taxes and raising interest rates in an emergency meeting.

“The IMF loan has lifted much of the near-term fog for Pakistan’s bonds, though price gains may now be more limited after the recent rally,” said Patrick Curran, a senior economist at Tellimer based in Portland, Maine. “We will be keenly monitoring program implementation ahead of elections and progress towards a timely successor arrangement post-election, which is necessary to avoid a default in the longer term,” he added. 

The IMF said that Pakistan will have to implement policies such as greater fiscal discipline, market determined exchange rate to absorb external pressures and other reforms on energy and business policies in order to make the loan program successful.

Pakistan’s economic growth slowed sharply to one of its lowest levels in its history after the devastating floods last summer and a dollar shortage stopped manufacturing. The IMF also reduced Pakistan’s growth forecast to 2.5% for the fiscal year 2024 from 3.5%. It also raised its inflation forecast for the year to 26% from 22% forecast in April.

Pakistan has been the biggest customer of the IMF, having borrowed almost a dozen times since 1950. The country does not have a good track record of meeting its targets. The country now has $25 billion of debt which it has to pay this fiscal year, starting this month. Pakistan’s foreign exchange reserves stood at $4.5 billion at the end of June, they also received $2 billion from Saudi Arabia and $1 billion from the United Arab Emirates this week.

As Pakistani Prime Minister Shehbaz Sharif secured the bailout after several long phone calls and meetings with the IMF executives, there is hope that it will boost their economy and stabilise their economic position to overcome their immediate to medium to long-term economic challenges and improve their finances which will help the country’s transition to a newly elected government later this year.

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