Pakistan has secured a new $3 billion bailout from the International Monetary Fund (IMF) to help its ailing economy and avoid a default on its external debt. The deal, announced on Thursday, is a nine-month Stand-By Arrangement (SBA) that builds on the previous $6.5 billion Extended Fund Facility (EFF) that was expired on Friday June 30.
The SBA will provide the government with much-needed foreign exchange reserves and enable it to access other sources of financing, such as private markets and friendly countries. The deal, according to the IMF, was achieved after Pakistan adopted “difficult but necessary policy actions” to resolve its fiscal and balance of payments problems.
In addition to raising the key interest rate by 100 basis points to 22% and re-basing the electricity tariffs to assure cost recovery, these measures involved amending the 2023–2024 budget to include new taxes and spending reductions.
The IMF said the SBA will support Pakistan’s economic recovery and reforms, while protecting social spending and strengthening social safety nets. It also urged Pakistan to continue implementing structural reforms to boost growth, create jobs, and improve governance and transparency.
The new deal with the IMF could provide the country’s economy and government with some breathing room; however, it also comes with tough conditions that could pose political and social challenges for the country in the coming months.
How much Pakistan benefited from Finance Minister Ishaq Dar’s insistence that the program adopted by his predecessor needed to be renegotiated will be an interesting question to explore?
Dar’s stubbornness cost the nation a good nine months of lost time, only to eventually accept much tougher conditions than the global lender was demanding under the original deal. Let’s hope the PML-N led coalition government has learned its lessons and will make use of the new stand-by arrangement to finish the work that was expected to have been done by now.
