By Staff Reporter
ISLAMABAD: Pakistan has secured a $3-billion, nine-month bailout from the International Monetary Fund (IMF) that will help it avoid default this year, Bloomberg Economics said.
The IMF staff and Pakistani authorities reached a staff-level agreement on the Stand-By Arrangement (SBA) on Friday, subject to approval by the IMF Executive Board in mid-July.
The SBA builds on Pakistan’s efforts under a 2019 Extended Fund Facility (EFF) programme that expired on Friday.
Economist Ankur Shukla, who covers South Asia, said a last minute bailout from the “IMF should help Pakistan avoid default this year”.
Shukla was of the view that a staff-level agreement signed with the lender suggests aid will finally materialise after months of delay.
“But – even if it does – the country’s debt troubles won’t end there. More IMF aid will be needed in 2024.”
The IMF aid was likely to be disbursed in tranches, conditional on Pakistan’s progress on fiscal consolidation and exchange rate flexibility.
“But chances seem high that the board will approve the funding because Pakistan in recent days has stepped up efforts to meet IMF demands. It’s raised taxes, cut spending in its budget, and hiked its key interest rate to a record at an unplanned meeting,” Shukla said.
The IMF funding will also unlock $3 billion in loans pledged by Saudi Arabia and the UAE.
Shukla said the loans should allow Pakistan to repay its debts through April 2024, assuming that the current account deficit for the fiscal year comes in below $4 billion as the central bank projects.
He said Pakistan dollar funds could rise up to $9.5 billion on account of inflows from the IMF and friendly nations. “(However), this won’t be enough to repay $8.7 billion in loans (net of rollovers) in the year starting July and also pay the country’s import bills for the full fiscal year.”
Pakistan will need more IMF aid in 2024 and will have to negotiate a new deal with the lender after elections in October, Shukla said.
“We have been expecting the aid to come. It should stabilise the economy and boost growth. We expect GDP to grow 2.5 percent in the fiscal year starting from July, up from 0.3% in the fiscal year through June 2023.”
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