The International Monetary Fund approved a $3 billion bailout program for Pakistan on Wednesday to help the cash-starved nation address its short-term, acute balance of payments crisis and avert a potential default, reports Voice of America.
An IMF statement said that its executive board met at its Washington headquarters and agreed to release the funds over nine months to support Pakistan's economic stabilization efforts.
"The Executive Board of the International Monetary Fund [IMF] approved a 9-month Stand-By Arrangement [SBA] for Pakistan for an amount of SDR2 250 million [about $3 billion, or 111 percent of quota] to support the authorities' economic stabilization program," the statement said.
It noted the arrangement comes at a challenging economic juncture for Pakistan.
"A difficult external environment, devastating floods, and policy missteps have led to large fiscal and external deficits, rising inflation, and eroded reserve buffers" in the fiscal year 2023, the IMF statement said.
Pakistan will immediately receive $1.2 billion under the agreement. "The remaining amount will be phased over the program's duration, subject to two quarterly reviews," the statement said.
It underscored that the program would require Prime Minister Shehbaz Sharif's government to implement "greater fiscal discipline, a market-determined exchange rate to absorb external pressures, and further progress on reforms related to the energy sector, climate resilience, and the business climate."
Wednesday's loan approval comes less than two weeks after the IMF and Pakistani officials agreed to the plan on June 29 following eight months of negotiations. Sharif hailed the IMF approval as a "major step forward" in his government's efforts to stabilize the economy.
"It bolsters Pakistan's economic position to overcome immediate- to medium-term economic challenges, giving the next government the fiscal space to chart the way forward," the prime minister said on Twitter.
Sharif's coalition government will complete its mandated term next month, and new elections in Pakistan will be held this fall.
Pakistan's foreign exchange reserves have recently dwindled to a historic low of about $4 billion as of a week ago, just enough to buy a few weeks' worth of controlled imports as opposed to the IMF-mandated three months of cover.
Families across the impoverished South Asian nation of about 230 million are struggling to cope with ever-declining buying power in the wake of skyrocketing inflation.
The IMF board approval will unlock other bilateral and multilayer external financing for Pakistan.
In the run-up to Wednesday's IMF announcement, the United Arab Emirates deposited a loan of $1 billion with Pakistan's central bank to support foreign exchange reserves, Pakistani Finance Minister Ishaq Dar said.
On Tuesday, Islamabad received a $2 billion loan from Saudi Arabia for one year in support of foreign exchange reserves. Close ally China rolled over more than $5 billion of Pakistan's loan in the last three months, a move Sharif said had significantly saved his country from defaulting on its debt repayments.
Dar expected the foreign exchange reserves to escalate to $15 billion by the end of this month.
The IMF bailout had been on hold since last December because of Pakistan's lack of compliance with a 2019 bailout deal between the lender and former Pakistani Prime Minister Imran Khan's government.