Pakistan’s concern of a default has ended, as the executive board of the International Monetary Fund (IMF) approved $3 billion stand-by agreement for Pakistan. The approval allowed an immediate disbursement of $1.2 billion in order to help Pakistan stabilise its ailing economy. It can be said that there are no further default speculations or significant rupee devaluation. The new deal has emerged as a good omen for Pakistan’s economy.

In 2019, the IMF approved a 39-month Extended Fund Facility (EFF) programme worth USD $6 billion for Pakistan. While $1 billion was immediately disbursed, Pakistan failed to meet IMF’s conditions for further loans under the EFF. Under the new government, multiple meetings were held with the IMF to complete the ninth review. The Prime Minister, Shebaz Sharif, discussed Pakistan’s economic growth efforts with the IMF’s Managing Director at the GFP summit in Paris and expressed hope for a swift release of funds under EFF.

As the 2023-24 budget was close to approval in the National Assembly, the IMF demanded Pakistan’s compliance with budget-related requirements. To secure essential IMF funding, the government made several changes in the budget, including fiscal tightening measures. With less than ten days left to the program’s expiry, the Prime Minister confirmed that Pakistan’s ninth review under the 2019 Extended Fund Facility, and the release of $1.2 billion, is expected within a day or two after a phone call with the IMF’s Managing Director.

Nathan Porter, the IMF’s Mission Chief for Pakistan, stated that the Pakistani authorities recently implemented decisive actions to align policies with the IMF-backed economic reform program. These measures involved passing a budget that expanded the tax base, allowing for increased social and development expenditures. Additionally, steps were taken to enhance the foreign exchange market’s functioning and implement tighter monetary policy to address inflation and balance-of-payment challenges, especially affecting vulnerable sectors.

The IMF team continued discussions with Pakistani officials to swiftly reach an agreement for financial support. On June 30, the IMF reached a staff-level agreement with Pakistan on a $3 billion stand-by arrangement (SBA) spanning nine months. An IMF official emphasised the significance of this new SBA for Pakistan, considering the challenges the economy faced, including last year’s devastating floods and commodity price increases due to the war in Ukraine. The IMF’s press release highlighted that the SBA would help stabilise the economy, preserve macroeconomic stability, and establish a framework for financing from multilateral and bilateral partners in response to recent external shocks.

Business entities in Pakistan, including the Lahore Chamber of Commerce and Industry (LCCI), warmly welcomed the $3 billion agreement, expressing optimism that it would bring an end to uncertainty and boost confidence among local and foreign investors, thus reviving the economy. As a result of the IMF deal, the rupee appreciated to Rs285 in the open market, and the stock market surged by 2000 points. Experts predicted a continued decrease in the dollar rate. Additionally, the Pakistan Stock Exchange (PSX) experienced historic gains following the agreement with the International Monetary Fund (IMF).

IMF’s approval of $3 billion was still in progress, as the staff of the International Monetary Fund (IMF) started its meetings with the representatives of major political parties including PTI, PPP to seek assurance of their support for key objectives and policies under the new $3 billion stand-by arrangement ahead of the national elections. Finally, after a long wait of 8-months, IMF approved $3 billion loan as a financial support for Pakistan on July 12. The deal replaces a four-year Extended Financing Facility program of $6.5 billion, originally signed by former Prime Minister Imran Khan in 2019. The programme comprises two instalments; therefore, the next tranche of $1.8 billion will be arriving in between November and February, under Extended Fund Facility (EFF).

The IMF’s official stated that Pakistan must take immediate steps to stabilise its economy under the $3 billion IMF-supported program. There are doubts about whether this new deal will lead to Pakistan’s economic recovery. The allocated funds from the IMF are expected to offer temporary relief by facilitating access to credit from various sources, including the private market, and attracting foreign direct investment. Additionally, Saudi Arabia pledged $2 billion in financial aid to Pakistan before the IMF board meeting, providing some temporary financial support. However, in the long term, these funds only serve as a temporary solution to Pakistan’s challenges. To address issues like costly fuel imports, water and energy shortages in agriculture, insufficient investment in public welfare, and political corruption, substantial and comprehensive reforms are necessary.