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01-07-2023
Bureau Report + Agencies
ISLAMABAD/ WASHINGTON: The International Monetary Fund (IMF) has reached a staff-level agreement with Pakistan on a $3bn standby arrangement, the lender said, a decision long awaited by the South Asian nation which is teetering on the brink of default.
The deal, subject to approval by the IMF board in July, comes after an eight-month delay and offers some respite to Pakistan, which is battling an acute balance of payments crisis and falling foreign exchange reserves.
“Praise be to God,” tweeted Finance Minister Ishaq Dar after the deal was announced early on Friday. Dar had said on Thursday the deal was expected any time soon.
With sky-high inflation and foreign exchange reserves barely enough to cover one month of controlled imports, Pakistan has been facing its worst economic crisis in decades, which analysts say could have spiraled into a debt default in the absence of the IMF deal.
The $3bn funding, spread over nine months, is higher than expected for Pakistan. The country was awaiting the release of the remaining $2.5bn from a $6.5bn bailout package agreed in 2019, which expired on Friday.
The new standby arrangement builds on the 2019 program, IMF official Nathan Porter said in a statement on Thursday, adding that Pakistan’s economy had faced several challenges in recent times, including devastating floods last year and commodity price hikes following the war in Ukraine.
“Despite the authorities’ efforts to reduce imports and the trade deficit, reserves have declined to very low levels. Liquidity conditions in the power sector also remain acute,” Porter said in a statement.
“Given these challenges, the new arrangement would provide a policy anchor and a framework for financial support from multilateral and bilateral partners in the period ahead.”
Porter also pointed out that liquidity conditions in the power sector remained acute, with a buildup of arrears and frequent power outages.
