Pakistan, facing a crisis, secures a $3 billion bailout agreement with the IMF.
Pakistan, currently facing a severe economic crisis, has reached a preliminary agreement with the “International Monetary Fund (IMF)” for a $3 billion funding package. The deal, subject to approval by the IMF board, comes after an eight-month delay and is aimed at helping Pakistan address its worst economic downturn since gaining independence. The country’s economy has been grappling with financial mismanagement issues for years, and they have been further exacerbated by a global energy crisis and devastating floods in the previous year.
The IMF’s mission chief for Pakistan, Nathan Porter, highlighted the external shocks faced by the country, including the catastrophic floods and the commodity price spike resulting from the conflict in Ukraine. These shocks, combined with policy missteps, have led to a stagnation in economic growth. The approval of the agreement by the IMF’s Executive Board is expected in the coming weeks, providing Pakistan with much-needed economic breathing space, according to Michael Kugelman from the Wilson Centre.
The $3 billion in funding, to be disbursed over nine months, exceeds initial expectations. Pakistan had been awaiting the release of the remaining $2.5 billion from a previous $6.5 billion bailout package agreed upon in 2019, which expired recently. The country’s foreign exchange reserves have declined to cover less than three weeks of imports, underscoring the urgent need for financial support.
In addition to economic challenges, Pakistan has experienced political turmoil, including clashes between supporters of former Prime Minister Imran Khan and the police. Khan himself was arrested on corruption charges, which were subsequently deemed illegal by the country’s Supreme Court. These events have further unsettled the financial markets. The Pakistani rupee has depreciated by approximately 40% against the US dollar over the past year.
On a positive note, international donors have pledged over $9 billion to assist Pakistan in recovering from the devastating floods in 2022. However, more funding will be required, as estimates suggest that over $16 billion is needed for a full recovery from the disaster. Overall, the IMF agreement provides some short-term relief for Pakistan’s economy, but long-term recovery and stability will require sustained efforts and structural reforms.
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