Pakistan has secured a $3 billion stand-by arrangement (SBA) by signing a staff-level pact with the International Monetary Fund (IMF).
While the agreement is yet to be approved by the IMF executive board in July, it offers respite to the cash-strapped country grappling with an acute economic crisis.
IMF team has reached a staff-level agreement with Pakistan on a nine-month Stand-by Arrangement (SBA) totaling US $3 billion. An International Monetary Fund (IMF) staff team, led by Mr. Nathan Porter, has concluded meetings with Pakistan's finance minister Ishaq Dar to discuss a… pic.twitter.com/DcAx3IikH7
— Pakistan Observer (@pakobserver) June 30, 2023
Overview
The new arrangement was finalised after the IMF team led by Nathan Porter met Pakistani authorities to develop a new financing framework for Pakistan.
The nine-month SBA builds on the existing 2019 Extended Facility Fund (EFF) program of $6.5 billion, which was due to expire today.
According to Porter, the new SBA will provide a policy anchor and framework for financial support from multilateral and bilateral partners in the period ahead, helping Pakistani authorities stabilise the economy from recent external shocks.
IMF Suggests Policy Changes
“The new SBA will also create space for social and development spending through improved domestic revenue mobilisation and careful spending execution to help address the needs of the Pakistani people,” the IMF said in a press release.
However, the international lending body remarked that Pakistan must undertake steadfast policy implementation to overcome its current challenges.
To this end, it suggested greater fiscal discipline, a market-determined exchange rate, and progress on reforms, especially in the energy sector. It also suggested that Islamabad promote climate resilience and help improve the business climate.
The International Monetary Fund has reached a staff-level pact with Pakistan on a $3 billion stand-by arrangement, the lender said, a decision long awaited by the South Asian nation which is teetering on the brink of default https://t.co/PJl47DjfG6
— Reuters (@Reuters) June 30, 2023
Pakistan’s Economic Turmoil
Commenting on the agreement, Pakistani PM Shehbaz Sharif said, “This Arrangement will help strengthen Pakistan’s foreign exchange reserves, enable Pakistan to achieve economic stability, and put the country on the path of sustainable economic growth.”
Sharif recently met IMF Director Kristalina Georgieva in Paris to secure the much-needed loan. Sharif thanked Pakistani Finance Minister Ishaq Dar and the IMF director for their cooperation and collaboration.
The much-needed funding comes as inflation in Pakistan is at a record high, with the economy facing several external shocks due to the 2022 floods and an international commodity price spike in the wake of Russia’s war in Ukraine.