Pakistan, currently in the midst of a severe economic crisis, has reached a staff-level agreement with the International Monetary Fund (IMF) for $3 billion (£2.4 billion) in funding.
The agreement is subject to approval by the IMF’s board, following an eight-month delay in the negotiations.
The South Asian nation is confronting its most severe economic crisis since gaining independence from Britain in 1947. In an effort to secure the agreement with the IMF, Pakistan’s central bank raised its primary interest rate to a record high of 22% on Monday.
Pakistan’s economy was already grappling with significant challenges due to years of financial mismanagement. However, it has been further strained by a global energy crisis and the devastating floods that struck the country last year. These factors have pushed Pakistan’s economy to the brink.
“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,” Nathan Porter, IMF’s mission chief for Pakistan said.
“As a result of these shocks as well as some policy missteps… economic growth has stalled,” he added.
Once agreed at staff level such deals are usually granted by the IMF’s Executive Board. The board is expected to consider the agreement in the coming weeks.
“This deal gives Pakistan the economic breathing room that it so badly needs,” Michael Kugelman from the US-based Wilson Center think tank told the BBC.
“The question is if it can use this IMF deal as an opportunity to pivot from immediate relief to a long-term recovery,” he added.
In May, Pakistan experienced a staggering annual inflation rate, reaching nearly 38%, setting a new record high. The approved funding of $3 billion, to be disbursed over a span of nine months, exceeds initial expectations.
Pakistan had been anticipating the release of the remaining $2.5 billion from a $6.5 billion bailout package agreed upon in 2019, which expired on Friday.
With a population exceeding 230 million, the nation has been grappling with ongoing challenges to stabilize its economy. This year, foreign exchange reserves fell to a level covering less than three weeks’ worth of imports.
Financial markets were further unsettled by violent clashes between supporters of former Prime Minister Imran Khan and the police. Mr. Khan’s arrest on corruption charges in May was subsequently deemed illegal by the country’s Supreme Court.
Over the past year, the Pakistan rupee has undergone a significant depreciation of approximately 40% against the US dollar.