Islamabad, Pakistan – Crisis-ridden Pakistan, amidst its worst economic upheaval since gaining independence from Britain in 1947, has achieved a monumental staff-level consensus with the International Monetary Fund (IMF) to secure an impressive $3 billion (£2.4 billion) funding arrangement.
This critical agreement, subject to the approval of the esteemed institution’s board, arrives after an extensive eight-month delay, intensifying the urgency of Pakistan’s economic predicament. To facilitate the fruition of this deal, Pakistan’s central bank, on Monday, raised its primary interest rate to an unprecedented pinnacle of 22%.
The Pakistani economy, already reeling from years of fiscal mismanagement, has been catastrophically pushed to the precipice by a global energy crisis and the devastating floods that ravaged the nation last year.
Nathan Porter, the IMF’s mission chief for Pakistan, expressed, according to BBC “The economy has 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.”
Upon the completion of staff-level consensus, these agreements typically garner approval from the IMF’s esteemed Executive Board. The board is expected to deliberate on this accord in the forthcoming weeks.
Michael Kugelman, an esteemed analyst from the US-based Wilson Center think tank, voiced his thoughts, stating, “This agreement bestows upon Pakistan the much-needed respite its economy so desperately yearns for.” Inquisitively, he pondered, “However, the pertinent question remains: Can Pakistan leverage this IMF pact as a catalyst for transitioning from immediate relief to sustainable long-term recovery?”
Katrina Ell, a distinguished economist at Moody’s Analytics, cautioned, “Persistent inflationary pressures, coupled with meager foreign reserves and an absence of macroeconomic stability, necessitate considerable time and unwavering fiscal discipline to surmount.”
In a pleasantly surprising turn of events, the allocated funding of $3 billion, disbursed over a span of nine months, exceeds initial expectations. Pakistan had been eagerly anticipating the release of the remaining $2.5 billion from a $6.5 billion bailout package agreed upon in 2019, which had expired on Friday, reports VoA.
For years, Pakistan, home to a population of over 230 million, has been grappling with the arduous task of stabilizing its economy. This year, the country’s foreign exchange reserves dwindled to a precarious level, covering a meager three weeks’ worth of imports.
Financial markets have been tumultuous due to violent clashes between supporters of Pakistan’s former Prime Minister, Imran Khan, and law enforcement agencies. In May, Imran Khan’s arrest on corruption charges sparked outrage and was subsequently deemed illegal by the country’s Supreme Court.
Over the past year, the Pakistani rupee has experienced a sharp devaluation of approximately 40% against the mighty US dollar.
In a separate development, global donors have pledged an overwhelming $9 billion to aid Pakistan’s recovery efforts from the harrowing floods that ravaged the nation in 2022. Although estimated recovery costs surpass $16 billion, this substantial assistance offers a glimmer of hope for the country’s rehabilitation.