Pakistan secures a $3 Billion IMF loan, but many obstacles lie ahead.
Islamabad: Pakistan's default risk seems to be finally over as the International Monetary Fund (IMF) has agreed to provide a $3 billion bailout loan just hours before the deadline expired on Friday. The decision was made during a virtual meeting led by Mr. Nathan Porter and Pakistani authorities on Thursday. The staff-level agreement will be put into action after approval by the IMF Executive Board, expected by mid-July, according to an IMF handout.
"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)," IMF Mission Chief to Pakistan, Nathan Porter, announced Friday.
The IMF announcement brought quick relief to Pakistan, as the value of its sovereign dollar bonds in 2024 immediately jumped over 8 cents. The decision to grant Pakistan the much-needed and promised support came after the country took steps to broaden the tax base and increase tax collection from undertaxed sectors, in its the 2014 budget. The IMF also appreciated Pakistan's decision on import prioritization and non-interference in the exchange rate.
Although the international lender acknowledges Pakistan's hardships since the completion of the seventh and eighth reviews in August 2022, including floods and global inflation due to the Ukraine war, it imposes tough conditions, which may further affect vulnerable communities. As part of the agreement, Pakistan has committed to increasing electricity prices by 33%. In the coming days, the electricity unit price will rise from Rs. 24.82 to Rs. 33. This price hike will pass on to the rest of the economy and may cause a new spiral of inflation.
Pakistan's economic problems are very deep and complicated due to ongoing political crisis. Imran Khan, once the army's favorite child, is no more favorite now. Army is supporting PML-N led Coalition. Khan has been demanding general elections, but PML-N, along with its allies PPP and religious parties, has been avoiding general elections.
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