ISLAMABAD: Pakistan received the much-awaited $1.1 billion final tranche from the International Monetary Fund (IMF) as part of the $3 billion as part of the second bailout package, the State Bank of Pakistan (SBP) confirmed on Tuesday.
The International Monetary Fund (IMF) Executive Board’s decision on Monday came after the global lender completed the second and final review of Pakistan’s economic reform program supported by the IMF’s Stand-By Arrangement (SBA).
With this development, the disbursements under the SBA reached around $3 billion. This also paved the way for the release of the last loan tranche of $1.1 billion.
Pakistan’s intention to receive an additional bailout package to guarantee “permanency in economic stabilization and deepen structural reforms” was also supported by the IMF board. Shortly after Prime Minister Shehbaz Sharif referred to the nation’s debt crisis as a “death trap,” the IMF approved the plan.
Shehbaz made these comments during the World Economic Forum (WEF) closing ceremony in Riyadh, Saudi Arabia. On Sunday, he met with Kristalina Georgieva, the managing director of the IMF, to talk about the next bailout program.
Pakistan was not included in the April 29 calendar that the IMF released on its website. Important roles were played by Finance Secretary Imdad Ullah Bosal, Governor Jameel Ahmad of the State Bank of Pakistan (SBP), and Prime Minister Shehbaz in first securing the deal in June 2023 and then seeing it through to completion.
In the last eight years, the nation has finished two bailout packages. The $6 billion Extended Fund Facility (EEF) was implemented successfully the last time around from 2013 to 2016. However, it was forced to apply for another rescue package in 2019, which was not successful.
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Pakistan inked a $3 billion, nine-month Stabilization and Growth Agreement (SBA) in July of last year, which stabilized the economy and reduced the current account deficit. Nonetheless, the budget deficit continued to spiral out of control and is expected to end up being roughly 7.4% of GDP, according to the IMF.
Along with increasing taxes on the salaried class and a sharp increase in the cost of fuel, gas, and electricity, the SBA also significantly increased the burden on the general public. The SBP lost its independence from the IMF and hasn’t been able to cut interest rates even though current and forward-looking inflation estimates have significantly decreased.
With Pakistan’s high poverty rate of 40% and an additional 10 million people on the edge of poverty, it is long overdue that the IMF make room for some economic growth.
“Continue with the timely implementation of power and gas tariff adjustments to keep average tariffs consistent with cost recovery while protecting the vulnerable through the existing progressive tariff structures, thus avoiding any net circular debt accumulation in FY24,” Pakistan had promised the IMF during the staff-level discussions.
Pakistan pledged to the IMF that by June 2024, it will limit its circular debt to Rs2.310 trillion, or the same amount as the previous year. However the debt flow had already reached Rs2.7 trillion, and the government intended to use a combination of rate hikes and budgeted subsidies to bring the debt down to the agreed-upon amount.
