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Pakistan Strikes $3bn IMF Bailout Deal Amid Severe Economic Crisis

The Entrepreneur Bytes Team June 30, 2023 55

Pakistan, grappling with its worst economic crisis since gaining independence in 1947, has reached a staff-level agreement with the International Monetary Fund (IMF) for $3bn of funding. The deal, subject to approval by the IMF’s board, comes after an eight-month delay and aims to alleviate the dire financial situation in the crisis-hit South Asian nation.

The country’s central bank took drastic measures to secure the agreement, raising its main interest rate to a record high of 22%. Pakistan’s economy, already burdened by years of financial mismanagement, has been further battered by a global energy crisis and devastating floods that struck the country last year.

Nathan Porter, the IMF’s mission chief for Pakistan, highlighted the external shocks that have impacted the nation’s economy, including the catastrophic floods and a spike in international commodity prices due to Russia’s war in Ukraine. These factors, coupled with policy missteps, have led to stalled economic growth.

The staff-level agreement, once approved by the IMF’s Executive Board, will provide Pakistan with much-needed economic breathing room. However, analysts caution that the real challenge lies in leveraging this opportunity for long-term recovery and sustained fiscal discipline.

Michael Kugelman from the US-based Wilson Center think tank emphasized the significance of the deal, stating that it gives Pakistan the respite it desperately needs. The focus now shifts to whether Pakistan can effectively transition from immediate relief to implementing measures for a lasting economic turnaround.

Katrina Ell, a senior economist at Moody’s Analytics, cautioned that the country’s high inflation, limited foreign reserves, and lack of macroeconomic stability require time and sustained fiscal discipline to overcome.

The $3bn funding, to be disbursed over nine months, exceeds initial expectations. Pakistan had been awaiting the release of the remaining $2.5bn from a $6.5bn bailout package agreed upon in 2019, which expired last week. The nation, with a population exceeding 230 million, has been struggling for years to stabilize its economy, with foreign exchange reserves falling to a critically low level.

Pakistan’s financial markets have also been rattled by deadly clashes between supporters of former Prime Minister Imran Khan and the police. Khan’s arrest on corruption charges in May, deemed illegal by the country’s Supreme Court, added to the uncertainty.

Over the past year, the Pakistan rupee has depreciated by approximately 40% against the US dollar. Additionally, international donors have pledged more than $9bn to assist Pakistan’s recovery from the devastating floods of 2022, although estimates suggest that over $16bn is needed for a complete restoration.

As the IMF board reviews the agreement in the coming weeks, Pakistan hopes to seize this opportunity to stabilize its economy and embark on a path of sustained growth and resilience.

Sources By Agencies