The Executive Board of the International Monetary Fund (IMF) approved a 9-month Stand-By Arrangement (SBA) for Pakistan for an amount of SDR2,250 million (about $3 billion, or 111 percent of quota) to support the authorities’ economic stabilization program.
The arrangement came 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.
Pakistan’s new SBA-supported program will provide a policy anchor for addressing domestic and external imbalances and a framework for financial support from multilateral and bilateral partners.
Loan program key points
The program will focus on implementation of the FY24 budget to facilitate Pakistan’s needed fiscal adjustment and ensure debt sustainability, while protecting critical social spending.
A return to a market-determined exchange rate and proper FX market functioning to absorb external shocks and eliminate FX shortages and an appropriately tight monetary policy aimed at disinflation; and further progress on structural reforms, particularly with regard to energy sector viability, SOE governance, and climate resilience.
The Executive Board’s approval allows for an immediate disbursement of SDR894 million (or about US$1.2 billion). The remaining amount will be phased over the program’s duration, subject to two quarterly reviews.
The finance ministry officials were optimistic that Pakistan might get $1.2 billion as the first tranche from the standby agreement.
Islamabad had assured the IMF of the financing gap of $8.2 billion, the officials said further.
They claimed that the IMF is satisfied with Pakistan’s proposed financing plan.
Apart from the IMF, the World Bank and the Asian Development Bank will also extend help to the country. The officials said there is also a likelihood of receiving financing of $3.5 billion from China this year.
Additionally, financing worth $2 billion from Saudi Arabia and $1 billion from the UAE has also been obtained.
