What Prompted Pakistan to Seek the IMF Deal? Key Steps for Progress Ahead

Pakistan Secures Vital $3 Billion Bailout Just Before Deadline: A Closer Look at Its Implications for the Financially Strained Nation

The International Monetary Fund (IMF) and Pakistan have just hammered out an agreement, and it's a bigger deal than anyone expected. They've inked a staff-level agreement for a whopping $3 billion under a Stand-By Arrangement (SBA). This rescue package couldn't have come at a more critical time for Pakistan, given their looming balance of payments crisis.

Pakistan was in a race against the clock, urgently needing to secure $1.1 billion as part of the ninth review for the $6.5 billion Extended Fund Facility (EFF) that was initially agreed upon back in 2019. The clock was ticking as the program's expiration date drew near.

The IMF is saying that this SBA is building on the efforts put forth in the Extended Fund Facility. The real decision-making moment will come when the IMF's Executive Board weighs in on this, which is expected to happen sometime in mid-July.

Here are some key points that shed light on why unlocking these funds is so crucial and what Pakistan has been dealing with:

Funding Facts:

This new Stand-By Arrangement spans over nine months and is going to pour in nearly $3 billion, which is a hefty sum - approximately 111% of Pakistan's IMF quota. But, remember, this agreement still has to get the nod from the IMF's Executive Board.

Review Pending:

Pakistan has already tackled eight out of the 11 listed program reviews. However, the ninth review has been lingering since November of the previous year, marking the longest delay in such reviews since at least 2008.

Economic Impact:

The IMF's seal of approval could open doors to more credit from other financial backers who tend to look to the IMF for assurance regarding Pakistan's $350 billion economy. It could also give Prime Minister Shehbaz Sharif's government a much-needed boost as they gear up for the upcoming general elections in November.

IMF's Conditions:

Meeting the IMF's expectations wasn't a walk in the park. Pakistan had to go back to the drawing board for its 2023-2024 budget draft, which meant introducing new taxes and making cuts in spending. Additionally, the IMF is really stressing the importance of recalibrating tariffs in the power sector, adopting market-driven exchange rates, ditching exchange controls, and actively curbing inflation.

State of Pakistan's Economy:

The numbers tell a grim tale. Pakistan needs more than $22 billion to service its external debt, make interest payments, and finance the current account for the financial year 2024. Their reserves are hanging on by a thread at just $3.5 billion, covering only about a month's worth of controlled imports. That's led to a series of credit rating downgrades by major agencies, all due to the economic uncertainty.

Mobilizing Financial Support:

Despite this hefty IMF bailout, Pakistan isn't out of the woods yet. They'll still need to hustle to secure multilateral and bilateral financial support. Pledges from Saudi Arabia and the United Arab Emirates totaling $3 billion, as well as debt rollovers from China, are absolutely critical. And let's not forget about making sure that the funds promised at international donor conferences, particularly the more than $9 billion pledged for climate-related recovery following the devastating floods in 2022, are put to good use.

In the fiscal year 2024, Pakistan has its work cut out for it, with a $22 billion mountain to climb to meet external payment obligations and fund the current account.