• Approval allows immediate disbursement of $1.2bn to shore up reserves
• PM says Fund’s go-ahead ‘major step forward’, bolsters country’s economic position
• Remaining amount to arrive later in two instalments

WASHINGTON: The Inter­national Monetary Fund (IMF) said on Wednesday that its executive board had approved a $3 billion loan agreement for Pakistan, unlocking crucial funding for the troubled economy.

In a statement, the IMF said its executive board green-lit the nine-month standby arrangement (SBA) in order “to support the authorities’ economic stabilisation programme”.

This follows a staff-level agreement between the Fund and Pakistan announced last month, and the latest approval allows an immediate disbursement of around $1.2bn.

The board approved the bailout package for the country for an amount of 2.25bn Special Drawing Rights (SDRs) — reserve funds that the institution credits to the accounts of its member nations, the IMF said in a statement. This amounts to about $3bn, or 111 per cent of Pakistan’s quota, it said.

The IMF explained that the economic reform programme it signed with Pakistan “aims to support immediate efforts to stabilise the economy and guard against shocks while creating the space for social and development spending to help the people of Pakistan”.

In a tweet, Prime Minister Shehbaz Sharif said the IMF’s approval was “a major step forward” in the government’s efforts to stabilise the economy and achieve macroeconomic stability.

“It bolsters Pakistan’s economic position to overcome immediate- to medium-term economic challenges,” giving authorities fiscal space to chart the way forward, he added.

Pakistan’s ambassador to the United States, Masood Khan, who has been involved in the process, called this “a positive development”.

The approval of SBA, he noted, had “already restored market confidence” and was “unlocking credit and external financing” from friendly countries. From this point onwards, Pakistan would continue to move towards macroeconomic stability, he said.

The ambassador also appreciated America’s support during the approval process, saying: “We appreciate the United States’ support in the IMF. We will continue to work with the US to strengthen our bilateral economic partnership.”

‘Supportive’ State Dept

At a Tuesday afternoon news briefing in Washington, State Department Spokesperson Mathew Miller hinted that the United States also backed Pakistan’s effort for the continuation of its loan arrangement with the IMF.

“What I would say is that we stand by the Pakistani people during these difficult times. We welcome the progress that has been made between the IMF and Pakistan in having reached a staff-level agreement,” he said.

“Our support for the country’s economic success is unwavering. And we will continue to engage with Pakistan through technical engagements and continue to strengthen our trade and investment ties.”

The US official, however, warned that “Pakistan has a lot of hard work ahead to be on a long-term sustainable path to economic recovery and prosperity,” but assured that “we will continue to stand by them through that process.”

The IMF statement, issued after the board’s meeting on Wednesday, also emphasised this point.

Subject to quarterly reviews

“Steadfast policy implementation will be critical for Pakistan and the success of the program,” it said. “This will require greater fiscal discipline, a market-determined exchange rate to absorb external pressures, and further progress on reforms related to the energy sector, climate resilience, and the business climate.”

The statement noted that the arrangement “comes at a challenging economic juncture for Pakistan. A difficult external environment, devastating floods, and policy missteps have led to large fiscal and external deficits, rising inflation, and eroded reserve buffers in FY23 [the fiscal year ended in June].”

Pakistan’s new SBA-supported programme would provide a policy anchor for addressing domestic and external imbalances and a framework for financial support from multilateral and bilateral partners, it said.

The IMF said that the programme would focus on four key points, including the implementation of the 2023-24 budget to facilitate Pakistan’s fiscal adjustment and ensure debt sustainability, while protecting critical social spending; a return to a market-determined exchange rate and proper foreign exchange market functioning to absorb external shocks and eliminate forex shortages; an appropriately tight monetary policy aimed at disinflation; and progress on structural reforms, particularly with regard to energy sector viability, governance of state-owned enterprises, and climate resilience.

Apart from the $1.2bn to be disbursed immediately, the remaining amount will be phased over the programme’s duration, subject to two quarterly reviews.

Published in Dawn, July 13th, 2023