The International Monetary Fund (IMF) approved a $3 billion (€2.7 billion) bailout package for the country on Wednesday.
The funds will help Pakistan avoid default as it grapples with inflation and the aftermath of devastating floods. The IMF has demanded Islamabad implement structural reforms and increase tax collection.
The decision follows months of talks with the South Asian country, which has been confronted with severe economic challenges and the prospect of default. Pakistan is facing an acute balance of payments crisis with central bank reserves that could only cover a month of controlled imports, and was also hit by devastating flooding last year.
What Did The IMF Say About The Deal?
The IMF`s Executive Board said the aid "aims to support immediate efforts to stabilize the economy and guard against shocks while creating the space for social development spending to help the people of Pakistan."
The aid will be dispersed over nine months, with about $1.2 billion being disbursed immediately.
The IMF said Pakistan was facing "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."
Pakistan received initial approval for the aid in June.
The IMF asked Pakistan to raise consumer energy prices, let go of currency controls, improve tax collection and tighten monetary policy. The central bank is to raise its policy interest rate to a record high of 22% and the government is to raise $1.39 billion in new taxes.
The organization also said that it wanted Islamabad to further progress in structural reforms, especially in the energy sector, state-owned enterprises and climate resilience.
The bailout had been on hold since December, when the IMF refused to release $1.1 billion from the loan because of the country`s lack of compliance with a 2019 agreement signed under the previous government headed by former Prime Minister Imran Khan.
Imran Khan`s government was toppled in a no-confidence vote in April 2022.
Bailout Gives Pakistan `Fiscal Space` To Move Forward
Prime Minister Shehbaz Sharif said the bailout "bolsters Pakistan`s economic position to overcome immediate-to-medium-term economic challenges."
He said that the funds gave the "next government the fiscal space to chart the way forward."
The Pakistani head of government said that the deal was achieved against "the heaviest of odds" and "against
seemingly impossible deadline."Sharif`s coalition government is due to face a national election later this year.
Islamabad also recently received support from Saudi Arabia and the United Arab Emirates, which have provided $3 billion over the last two days.
In the last three months, China had rolled over $5 billion in loans to save the country from default.
The Fitch credit rating agency upgraded Pakistan`s sovereign debt rating by one notch to CCC from CCC- on Monday. That agency says it perceives a "substantial credit risk" with "a real possibility" of default at this rating.
