IMF board approves $700mn loan for Pakistan

With injection of $700 million, foreign exchange reserves would come close to $9 billion in next few days. The IMF Executive Board has completed the first review and approved the release of second tranche of $700 million for Pakistan’s dollar-starved economy under the $3 billion Standby Arrangement (SBA) Program. The finance ministry Thursday night issued a brief statement stating the IMF Executive Board had completed the first review of Pakistan’s economic reform program supported by the IMF’s SBA.With the injection of $700 million, the foreign exchange reserves would come close to $9 billion in next few days.”The Board’s approval allows for an immediate disbursement of SDR528 million (around US$700 million) bringing the total disbursements under the SBA to $1.9 billion” added the statement. Pakistan has assured the IMF in writing that under the SBA programme, the government will return to a market-determined exchange rate and rebuilding of forex reserves. While inflows following increased regulatory and law enforcement helped normalize import and FX payments and rebuild reserves, the Pakistani authorities recognize that the rupee must remain market-determined to sustainably alleviate external pressures and rebuild reserves.To support this, they plan to strengthen transparency and efficiency of the FX market and to refrain from administrative actions to influence the rupee. The government with the signature of minister for finance and SBP governor conveyed to the IMF that steadfast execution of FY24 budget, continued adjustment of energy prices, and renewed flows into the foreign exchange (FX) market had lessened fiscal and external pressures. A statement from the ministry said the completion of the first review by the IMF’s Executive Board and the payment of 528m in special drawing rights brought the total disbursements under the SBA to $1.9billion.
IMF funding along with recent inflows from multilateral lenders will further help the Pakistani rupee that is fairly stable over the last few months. This new tranche would help Pakistan in getting rollovers from allied countries such as the United Arab Emirates, China and Saudi Arabia and ease external debt repayment pressure. In June 2023, the IMF Executive Board had approved the much-needed nine-month arrangement with Pakistan “to support its economic stabilization programme. The approval had allowed for an immediate disbursement of $1.2bn, with the rest to be phased over the programme’s duration subject to two quarterly reviews. The current IMF programme is expected to conclude in the second week of April. The initial tranche of $1.2bn was released in July. In November 2023, a Staff-Level Agreement was reached between the IMF staff and Pakistani authorities regarding the first review under Pakistan’s SBA. This agreement was contingent upon approval by the IMF’s Executive Board. Pakistan is now more likely to receive the remaining amount in March under the $3bn SBA.
Caretaker Finance Minister Shamshad Akhtar had already informed the nation that the country needs to enter a new agreement with the IMF for the support of the economy. There is no hope that Pakistan could say goodbye to the lending agency. Despite tough conditions, Pakistan is still facing very high inflation which is at 29.7 per cent for December from 29.2pc in the preceding month. The latest data reveals that Pakistan has engaged in 24 arrangements with the IMF since becoming a member on July 11, 1950. This emphasized the country’s historical reliance on IMF support to address economic challenges.
The business community expressed qualified support, ordinary Pakistanis dread further hardships due to the inherent conditions of the package. The IMF obligates the government to implement stabilization policies, leading to increased taxes, levies, accelerated energy rates and reduced development spending.
People in Pakistan resent the IMF. The memory of all previous programmes is unpleasant, marked by the anticipation of gains that never materialized despite enduring the pain of stabilization. The IMF obligates the government to implement policies that lead to inflation and joblessness. Since July 2023, when the IMF approved a nine-month $3bn bailout package for Pakistan, fuel, electricity and gas prices have risen, contributing to crushingly high inflation and unemployment rates. Since the caretakers assumed power in August, petrol and diesel prices increased by Rs58.6 and Rs55.7 till the end of September. Both electricity and gas tariffs rose considerably, impacting even the lifeline consumers of gas, who were charged Rs10 per month and will now pay a minimum of Rs500.
Dr Shamshad Akhtar, Caretaker Finance Minister, conveyed over phone, stating, “Economic and price stability will pave the way for benefits for the poor. Following the standard operating procedure, the second tranche of $700 million will be released after approval of the IMF Management and Executive Boards. The staff-level agreement and its forward-looking directives will bolster macroeconomic stability, fostering growth and facilitating expansion in social safety nets for the vulnerable. The Pakistan Stock Exchange’s benchmark index to over 57,000 marks and the rupee showed hardiness by gaining value against the dollar. Pakistan Business Council voiced the corporate sectors about the escalating cost of doing business. The recent gas rate increase has severely impacted domestic and industrial consumers. The mention of the necessity of free and fair elections is a positive development, removing uncertainty. IMF’s scrutiny of SIFC is confusing. The reason of its establishment is to create a comfort zone for mega investors, recognized for sustainable guarantees and prioritizing indigenous sectors like agriculture, mining, and information technology.