IMF to Cast Vote on Pakistan’s $3 Billion Bailout Program

The International Monetary Fund (IMF) is poised to decide on Pakistan’s request for a $3 billion bailout program.

The short-term financial arrangement was agreed upon on June 30th to help the nation receive this sum over nine months, contingent upon the IMF board’s approval.

Since the deal was proposed, Pakistan’s external financial environment has seen improvements. Notably, Fitch Ratings Inc. has enhanced the rating for the financially challenged country to CCC for long-term foreign currency issuers. Additionally, the State Bank of Pakistan (SBP) has recently received a deposit of $2 billion from Saudi Arabia, a significant step towards alleviating the country’s fiscal crisis.

Pakistan’s Economic Climate and Plan for External Financing

Pakistan is grappling with soaring inflation rates and meagre foreign exchange reserves, sufficient for just one month of regulated imports. Analysts suggest that the country’s economic woes could lead to a debt default without the proposed IMF bailout.

Fitch highlighted that the rating upgrade was due to improved external liquidity and financing conditions following the standby arrangement (SLA) with the IMF. However, they caution that the nation’s fiscal deficit remains significant.

By securing the IMF deal, Pakistan could access additional external financing. The nation’s financial plan forwarded to the lender reveals that it has arranged for $3.5 billion from China, $2 billion from Saudi Arabia, and $1 billion from the United Arab Emirates in bilateral funds. On the multilateral front, Pakistan plans to secure $500 million each from the Asian Development Bank and the World Bank, alongside the $3 billion from the IMF.

In the fiscal year 2024, local authorities hope to procure $25 billion in gross new external financing to cover $15 billion in public debt maturities, including $1 billion in bonds and $3.6 billion to multilateral creditors.

Despite the positive financial developments, Pakistan faces political instability, particularly after the ousting of former prime minister Imran Khan in April last year through a no-confidence vote. The IMF, keen on ensuring that the program’s measures are implemented ahead of the elections scheduled for October, has held meetings with all mainstream political parties to garner support for the standby arrangement. Imran Khan’s Pakistan Tehreek-e-Insaf party has reportedly expressed its support for the deal.