Skip to content
Search

Latest Stories

Pakistan secures critical $3 billion IMF bailout

This financial assistance comes at a critical time as Pakistan faces the imminent risk of default, offering a momentary reprieve and stability to the south Asian nation

Pakistan secures critical $3 billion IMF bailout

In a much-needed relief for the Pakistani economy, the country successfully obtained a crucial $3 billion short-term financial package from the International Monetary Fund (IMF) on Friday (30).

The agreement between Pakistan and the IMF has been reached, and it is now awaiting approval by the IMF board in July.


This financial assistance comes at a critical time as Pakistan faces the imminent risk of default, offering a momentary reprieve and stability to the south Asian nation.

Just hours before the expiration of the existing IMF agreement, Pakistan managed to secure a new nine-month standby arrangement, bringing much-needed relief to the country's severe balance of payments crisis.

Prime minister Shehbaz Sharif expressed confidence that this arrangement would set Pakistan on the trajectory of sustainable economic growth.

Given the soaring inflation rates and foreign exchange reserves that could barely cover a month's worth of imports, analysts warn that Pakistan's economic crisis could have escalated into a full-fledged debt default if not for the timely bailout.

It was reached only after Sharif held marathon meetings with IMF head Kristalina Georgieva on June 22, which he termed "a turning point".

Pakistan will receive formal documents on the deal later on Friday, finance minister Ishaq Dar told Reuters, which he said he would "sign, seal and return by tonight".

The new deal, which came hours after Dar told Reuters exclusively that it could happen anytime, will disburse an upfront amount of $1.1 billion shortly after the IMF board's meeting in July, he said.

Dar said Pakistan aimed to boost the central bank's foreign exchange reserves up to $15 billion by July end. "We have stopped the decline, now we have to turn to growth," he added.

Pakistan's sovereign dollar bonds were trading higher after the announcement, with the 2024 issue enjoying the biggest gains, up more than 8 cents at just above 70 cents in the dollar, according to Tradeweb data.

The gains were most pronounced in shorter-dated bonds, reflecting lingering scepticism over the longer-term fiscal outlook for the country.

The $3 billion short-term IMF funding is higher than expected as it looks set to replace the remaining $2.5 billion from a $6.5 billion Extended Fund Facility agreed in 2019.

"This new programme is far better than our expectations," said Mohammed Sohail of Topline Securities in Karachi, adding it would "definitely help restore some investor confidence".

The deal will also unlock other bilateral and multilateral financing. Long-time allies Saudi Arabia, the UAE and China have already pledged or rolled over billions of dollars in loans.

"This will support near-term policy efforts and replenish gross reserves," the IMF said.

Power price hikes

The new arrangement builds on the 2019 programme, IMF official Nathan Porter said in a statement, adding that Pakistan's economy had faced several challenges in recent times, including devastating floods and rising commodity prices.

"Despite the authorities' efforts to reduce imports and the trade deficit, reserves have declined to very low levels. Liquidity conditions in the power sector also remain acute," Porter said.

"Given these challenges, the new arrangement would provide a policy anchor and a framework for financial support from multilateral and bilateral partners in the period ahead."

Porter also pointed out the power sector's buildup of arrears and frequent power outages.

Reforms in the energy sector, which has accumulated nearly 3.6 trillion Pakistani rupees ($12.58 billion) in debt, has been a cornerstone of the IMF talks.

The IMF said it would want steadfast policy implementation by Pakistan to overcome challenges, "particularly in the energy sector", where it expects a rise in electricity prices.

Dar said the hike will come before the IMF board's meeting, saying the rebasing to be done in July will make about three to four rupees a unit difference.

He also said petroleum levy will be capped at 60 rupee a litre.

He announced a 7.5 rupee a litre increase in diesel prices late Friday night, saying petrol prices will remain unchanged for next 15 days.

"Reform does not, must not, mean raising tariff endlessly," said Pakistan's minister for power Khurram Dastgir.

With the tenure of the current government ending in August, Dastgir said it had put in place an "aggressive medium-to-long-term plan" to increase renewable energy which was only possible if long-term assistance is available.

Painful reforms

Islamabad has taken a slew of measures demanded by the IMF since its mission arrived in Pakistan in February, including revising its 2023-24 budget and a policy rate hike to 22% in recent days.

It also got Pakistan to raise more than 385 billion rupee ($1.34 billion) in new taxation to meet the IMF's fiscal adjustments.

The IMF said the central bank should remain pro-active to reduce inflation and maintain a foreign exchange framework.

The painful adjustments have already fuelled all time high inflation of 38% year-on-year in May, the highest in Asia.

"The FY24 budget advances a primary surplus of around 0.4 percent of GDP," Porter said, adding it will be important that the budget is executed as planned, and authorities resist pressures for un-budgeted spending or tax exemptions.

(Reuters)

More For You

modi-trump-getty
Modi shakes hands with Trump before a meeting at Hyderabad House in New Delhi on February 25, 2020. (Photo: Getty Images)

US trade officials in India for talks as tariff deadline nears

US OFFICIALS arrived in India on Tuesday for trade discussions ahead of the implementation of tariffs announced by president Donald Trump.

The meetings come as the US moves forward with reciprocal tariff measures affecting multiple countries, including India.

Keep ReadingShow less
modi-trump-getty
Modi shakes hands with Trump before a meeting at Hyderabad House in New Delhi on February 25, 2020. (Photo: Getty Images)

India open to tariff cuts on £17.7 bn worth of US imports: Report

INDIA is considering cutting tariffs on more than half of US imports valued at £17.7 billion as part of ongoing trade negotiations, two government sources told Reuters.

The move, which would be the most significant tariff reduction in years, is aimed at countering reciprocal tariffs.

Keep ReadingShow less
tata-steel-green

Artist’s impression of Tata Steel’s state-of-the-art Electric Arc Furnace facility being built in Port Talbot. (Image credit: Tata Steel)

Tata Steel

Tata Steel hires local firms for Port Talbot project, creating 300 jobs

TATA STEEL has appointed three South Wales contractors to support its £1.25 billion investment in green steelmaking at Port Talbot. The contracts will create over 300 skilled jobs in the local supply chain.

Bridgend-based Darlow Lloyd & Sons will oversee excavation, recycling, infrastructure, and drainage work for the transition to Electric Arc Furnace (EAF) steelmaking.

Keep ReadingShow less
 Survey Reveals More Britons Reducing Everyday Spending

About 43 per cent of consumers said they were cutting back on everyday purchases, while more than a third reported increasing their savings as a precaution. (Photo: Getty Images)

Getty Images

Survey shows more Britons cutting back on everyday expenses

CONSUMERS in the UK are reducing spending on everyday items as confidence in the economy declines ahead of chancellor Rachel Reeves’s spring statement, according to a KPMG survey.

The survey, conducted among 3,000 UK consumers, found that 58 per cent believed the economy was worsening in the three months to February, up 15 percentage points from the previous quarter, The Guardian reported.

Keep ReadingShow less
23andMe

Many users trusted 23andMe with some of their most sensitive personal information

Getty Images

DNA data of millions at risk as 23andMe declares bankruptcy

The recent Chapter 11 bankruptcy filing by genetic testing company 23andMe has raised serious concerns about the privacy and security of the DNA data of millions of users. Founded in 2006, 23andMe has long been a leader in consumer genetic testing, offering individuals insights into their predisposition to various diseases and the possibility of connecting with unknown relatives. However, with the company now seeking buyers in bankruptcy proceedings, the sale of this genetic data has become a source of alarm for privacy advocates and experts.

Many users trusted 23andMe with some of their most sensitive personal information, their DNA. However, as the company faces financial struggles, privacy experts warn that the future handling of this data may be far less secure. Tazin Kahn, CEO of the nonprofit Cyber Collective, which promotes privacy and cybersecurity for marginalised groups, expressed deep concern about the potential consequences. “Folks have absolutely no say in where their data is going to go,” she said. “How can we be so sure that the downstream impact of whoever purchases this data will not be catastrophic?”

Keep ReadingShow less