The International Monetary Fund building in Washington. — AFP/File

In a major breakthrough on Friday, the International Monetary Fund (IMF) announced reaching a staff-level agreement (SLA) with Pakistan on $3 billion “stand-by arrangement” (SBA).

“I am pleased to announce that the IMF team has reached a staff-level agreement with the Pakistani authorities on a nine-month Stand-by Arrangement (SBA) in the amount of SDR2,250 million (about $3 billion or 111 percent of Pakistan’s IMF quota),” Nathan Porter, the IMF’s Mission Chief to Pakistan, said in a statement.

“The new SBA builds on the authorities’ efforts under Pakistan’s 2019 EFF-supported programme which expires end-June. This agreement is subject to approval by the IMF’s Executive Board, which is expected to consider this request by mid-July,” the statement added.

The agreement, reached after eight-month delay, offers some respite to the country’s economy which is reeling from depleting foreign exchange reserves and acute balance of payments crisis.

In a statement issued today, the IMF said since the completion of the combined seventh and eight reviews under the 2019 EFF in August 2022, the Pakistan’s economy faced several external shocks such as the catastrophic floods in 2022 that impacted the lives of millions of Pakistanis and an international commodity price spike in the wake of Russia’s war in Ukraine.

As a result of these shocks as well as some policy missteps — including shortages from constraints on the functioning of the forex market— economic growth has stalled. “Inflation, including for essential items, is very high. Despite the authorities’ efforts to reduce imports and the trade deficit, reserves have declined to very low levels,” the IMF’s statement said.

Moreover, it said liquidity conditions in the power sector also remain acute, with further buildup of circular debt and frequent loadshedding.

The global lender said new SBA will support Pakistan’s immediate efforts to stabilise the economy from recent external shocks, preserve macroeconomic stability and provide a framework for financing from multilateral and bilateral partners.

“The new SBA will also create space for social and development spending through improved domestic revenue mobilisation and careful spending execution to help address the needs of the Pakistani people.”

Steadfast policy implementation is key for Pakistan to overcome its current challenges, including through greater fiscal discipline, a market determined exchange rate to absorb external pressures, and further progress on reforms, particularly in the energy sector, to promote climate resilience, and to help improve the business climate, the statement added.

‘Rupee expected to appreciate against dollar’

Renowned businessman Arif Habib termed the IMF’s agreement a positive development saying “this will definitely increase the business confidence” in the country.

Speaking to Geo News, he said the bilateral and multilateral donors will also start dealings with Pakistan after the IMF agreement.

“International investors, commercial markets and non-residents Pakistanis confidence [in the economy] will also improve,” he added.

Moreover, Habib said IMF-dictated reforms will ensure stability and bring down inflation in the country.

He also anticipated that the value of rupee is also expected to appreciate against the US dollar.

“[…] 5 to 7% improvement (meaning 15 to 20 rupees) is expected in the value of rupee against the dollar,” he added.

PM credits Dar for IMF bailout package

Prime Minister Shehbaz Sharif hailed signing of the agreement with IMF saying the deal will help Pakistan in achieving economic stability.

“Alhamdulillah, I am pleased to announce that Pakistan has reached a Staff-Level Agreement with the IMF on a nine-month US$3 billion Stand-By Arrangement. This Arrangement will help strengthen Pakistan’s foreign exchange reserves, enable Pakistan to achieve economic stability, and put the country on the path of sustainable economic growth, Insha’Allah,” he wrote on his official Twitter handle.

PM Shehbaz appreciated the efforts and hard work of Finance Minister Ishaq Dar and his team at the Ministry of Finance for striking a deal with IMF.

“I would also like to thank MD IMF Kristalina Georgieva and her team at the IMF for their cooperation and collaboration, especially during the course of last week,” he added.

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