Pakistan Gets $700m from IMF, UAE Extends $2b Loan

Pakistan has received a $700 million loan tranche from the International Monetary Fund (IMF) as part of its $3 billion bailout programme, the State Bank of Pakistan (SBP).

The loan tranche was approved by the IMF Executive Board last week after completing its first review of Pakistan’s economic performance under the nine-month Stand-By Arrangement (SBA) that was agreed in July last year.

The SBA aims to support Pakistan’s efforts to stabilize its economy, reduce its fiscal and external imbalances, and create space for social and development spending. The IMF also provides a framework for financial assistance from other multilateral and bilateral partners.

With the latest disbursement, Pakistan has received about $1.9 billion from the IMF under the SBA. The remaining amount will be phased over the duration of the programme, subject to quarterly reviews.

The IMF praised Pakistan’s policy implementation under the SBA, noting that there were “tentative signs of activity picking-up and external pressures easing”. The IMF also acknowledged the challenging steps taken by Pakistan to bring electricity and gas prices closer to costs in 2023, and urged the authorities to continue with regular adjustments and reforms in the power sector.

However, the IMF also warned that Pakistan’s economic outlook remains uncertain and subject to downside risks, especially from the ongoing global energy crisis and the Covid-19 pandemic. The IMF called for steadfast policy implementation and vigilance to safeguard macroeconomic stability and protect the most vulnerable segments of the society.

To secure the IMF bailout, Pakistan had to implement tough measures, such as a revamped budget, a record interest rate hike, and painful increases in electricity and gas prices. These measures fuelled all-time high inflation of 38% year-on-year in May, which is still hovering above 30%.

The IMF also required Pakistan to raise $1.34 billion in new taxation to meet fiscal targets. The IMF said that Pakistan’s fiscal performance in the first quarter of FY24 was broadly in line with the programme, but stressed the need to mobilize more revenues, enhance tax administration, and improve public financial management.

As Pakistan has secured the IMF loan, analysts expect the country to receive more loans from other sources. In a statement, the SBP also confirmed that the United Arab Emirates (UAE) has rolled over two $1 billion deposits, which were maturing in January 2024, for another year.

The UAE deposits were part of a $6.2 billion financial package that the Gulf country had pledged to Pakistan in 2019, along with Saudi Arabia and Qatar. The package included $3 billion in cash assistance and $3.2 billion in deferred oil payments.

The UAE’s decision to extend the deposits came as a relief for Pakistan, which is facing a tight external financing situation. Pakistan’s foreign exchange reserves stood at $18.9 billion as of January 7, 2024, which cover about three months of imports.

Pakistan is also in talks with China, its largest creditor, to reschedule some of its bilateral debt under the G20 Debt Service Suspension Initiative (DSSI). Pakistan has already availed $3.7 billion in debt relief from the G20 countries and the Paris Club under the DSSI, which has been extended till June 2024.

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