- Pakistan and IMF reach $3 billion funding agreement
- Agreement provides economic breathing room for crisis-hit Pakistan
- Challenges and potential for long-term recovery in Pakistan’s economy
Crisis-hit Pakistan and the International Monetary Fund (IMF) have reached a staff-level agreement regarding $3 billion (£2.4 billion) of funding.
The transaction, which must still be approved by the global lender’s board, has been delayed for eight months.
Since gaining independence from Britain in 1947, the South Asian nation is confronting its worst economic crisis.
Monday, Pakistan’s central bank increased its key interest rate to a record high of 22% to secure the agreement.
Pakistan’s economy, which was already struggling due to years of financial mismanagement, has been driven to the edge of collapse by a global energy crisis and devastating floods that struck the country last year.
“The economy has faced several external shocks, including the catastrophic floods of 2022, which impacted the lives of millions of Pakistanis, and an international commodity price spike in the aftermath of Russia’s war in Ukraine,” said Nathan Porter, head of the IMF’s mission in Pakistan.
“As a result of these shocks and policy errors, economic growth has stalled,” he continued.
Once agreed upon at the staff level, the IMF’s Executive Board typically approves such agreements. In the coming weeks, the board is anticipated to consider the agreement.
This agreement also provides Pakistan with the much-needed economic breathing room, according to Michael Kugelman of the US-based Wilson Centre think tank.
“The question is whether it can use this IMF agreement to transition from immediate relief to a long-term recovery,” he added.
Senior economist at Moody’s Analytics Katrina Ell stated, “Overcoming high inflation, limited foreign reserves, and a lack of macroeconomic stability requires time and sustained fiscal discipline.”
In May, Pakistan’s annual inflation rate reached a new record high of nearly 38%.
The $3 billion in funding, which will be distributed over nine months, exceeds expectations.
Pakistan expected the last $2.5 billion from a 2019 $6.5 billion assistance package, which expired last Friday.
The over 230 million-person nation has struggled for years to stabilize its economy.
This year, the country’s foreign exchange reserves declined to less than three weeks’ worth of imports.
Financial markets have been shaken by violent conflicts between supporters of Pakistan’s former prime minister Imran Khan and police.
In May, Mr. Khan was arrested on corruption charges, a measure deemed illegal by the country’s highest court.
In the past year, the Pakistani rupee has lost roughly 40% of its value against the US dollar.
Global donors have committed over $9 billion to help Pakistan recover from the 2022 floods.
It was estimated that more than $16 billion would be required to recover from the disaster.
