By Staff Reporter
KARACHI: Pakistan secured a $700 million loan from the International Monetary Fund on Thursday, the second tranche of a $3 billion loan program that aims to shore up its foreign exchange reserves and currency ahead of a national election in February.
The IMF’s executive board approved the first review of the nine-month Stand-By Arrangement, which was agreed in July last year to help Pakistan cope with external account imbalances and other challenges.
The disbursement brings the total amount received under the program to $1.9 billion, the finance ministry said in a tweet. Pakistan is expected to get the remaining $1.1 billion in March, subject to the completion of the second review.
The loan program has required Pakistan to implement painful reforms, such as raising energy tariffs and taxes, to meet the IMF’s conditions. The IMF-backed measures pushed inflation to a record 38 percent in May last year, forcing the central bank to keep its policy rate unchanged at a record 22 percent since June to tame runaway consumer prices.
However, Pakistan’s external position has improved in recent months, thanks to a surge in remittances from overseas workers and an increase in exports. Pakistan’s current account recorded a surplus of $9 million in November.
The rupee, which plunged to a record low of 307 per dollar in September last year, has appreciated by about 10 percent since then.
“IMF funding along with recent inflows from multilateral lenders will further help the Pakistani rupee, which is fairly stable over the last few months,” said Mohammad Sohail, CEO of brokerage Topline Securities. “This new tranche will help in getting rollovers from a few friendly countries and will ease external debt repayment pressure.”
The IMF’s endorsement comes as Pakistan gears up for a general election on Feb. 8, which will determine the fate of the country’s fragile democracy and troubled economy.
However, the country may need to negotiate a new agreement with the IMF to sustain its economic recovery, as it faces fiscal challenges, caretaker Finance Minister Shamshad Akhtar said last month.
Pakistan has a history of relying on IMF support, having entered 24 arrangements since becoming a member in 1950.
Analysts say the country will need a clear economic vision and a stable political environment to secure a follow-on IMF program after the current one expires in April. The country also has a history of abandoning IMF programs midway, only to seek new bailouts later.
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