Pakistan's risk of a sovereign default has decreased as a result of the IMF's initial approval of a $3 billion lending programme. The agreement reached at the staff level is subject to IMF Executive Board approval, which is expected to be decided by mid-July, according to a statement on the lending institution's website. Pakistan is one of the IMF's most frequent clients, having received roughly two dozen bailouts since the 1950s.
IMF has stated that these funds will be used to support the government's immediate efforts to stabilise the economy in the wake of recent external shocks, maintain macroeconomic stability, and lay the groundwork for financing from multilateral and bilateral partners.
Pakistan made a last-ditch effort to get IMF financing by agreeing to dramatically increase taxes and reduce spending. The South Asian nation is in desperate need of financing to alleviate a currency shortage, restore supply, and save the economy in time for upcoming elections.
About $23 billion, or more than six times Pakistan's reserves, will be needed to cover the country's external debt service for the fiscal year 2024, which begins in July.
Moody's Investors Service warned earlier this month that without an IMF bailout, Pakistan risks defaulting on its debt. With its political crises and delays in implementing reforms, Pakistan is the last of the three South Asian countries to secure IMF money.
To comply with the IMF's primary conditions, Pakistan raised taxes, increased the cost of energy, and allowed its currency to depreciate. Following a devaluation by the government in January, the rupee has been one of the worst-performing currencies this year, falling by more than 20%.
Pakistan's foreign exchange reserves had fallen to $3.5 billion by mid-June, a 60% drop in the past year. This limited the country's ability to import essential goods, such as raw materials, and forced many businesses to close.
The current loan programme for Pakistan, which began in 2019, has been delayed many times due to the country's rocky history with the IMF. Staff permission for a $1.1 billion loan was granted by the government in August, but the transaction was then delayed due to Islamabad's failure to follow certain requirements.
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