The International Monetary Fund's executive board on Wednesday approved a $7 billion bailout package to help support the country's struggling economy.
The board said the 37-month programme “will require sound policies and reforms” to support Islamabad's efforts to strengthen macroeconomic stability, “address deep structural challenges and create conditions for a stronger, more inclusive and resilient growth”.
As part of the agreement, the Washington-based multilateral lender announced an immediate disbursement of $1 billion.
It is the 24th bailout Pakistan has received since joining the IMF in 1950. The deal was first reached in July, pending the IMF's board approval. The government has said the most recent programme should be considered the last it will receive.
Pakistan's Prime Minister Shehbaz Sharif said the new programme would put the country on the road to economic recovery.
The IMF projects Pakistan's gross domestic product to grow by 2 per cent this year before 3.5 per cent growth in 2025, according to its most recent World Economic Outlook.
The priorities of the new programme are to entrench stability through consistent policies, create a more favourable environment for private businesses, improve public services and develop environmental resilience.
“The authorities recognise that Pakistan needs consistent policymaking to improve economic prospects and also to reconsider its development model,” said Nathan Porter, IMF's mission chief to Pakistan.
For Islamabad to rebuild its policy-making credibility, Mr Porter said it would have to establish and deliver on goals consistent with macroeconomic and debt sustainability. That also includes monetary policy decisions by the central bank to drive down inflation to its target range.
Inflation has considerably slowed since peaking at about 38 per cent last May. The country's inflation rate had fallen to 9.64 per cent in August, according to the Pakistan Bureau of Statistics.
Two goals Pakistan officials have outlined are to move the primary surplus to 2 per cent of gross domestic product and raise net tax-to-GDP by three percentage points.
While Pakistan has made some progress in restoring economic stability and taming inflation, “vulnerabilities and structural challenges remain formidable”, the IMF said.
“I think it's just a matter of consistently implementing and delivering on good policies,” Mr Porter said.
The UAE, Saudi Arabia and China provided “significant” financial assurances to underpin the programme in addition to agreeing to roll over existing debt owed by Pakistan, Mr Porter said.
The fund said continued support from Pakistan's development and bilateral partners would be critical to the programme's success. Pakistan continues to have a difficult business environment, and the outsize role of the state weakens investment.
“The challenge confronting Pakistan now is to move beyond this renewed sense of stability and towards stronger and sustained growth with its benefits shared more broadly and evenly across society,” Mr Porter said.
The IMF noted that, in particular, there has not been enough investment in health and education to tackle persistent poverty. Inadequate investment in infrastructure and “limited economic potential” also leave Pakistan vulnerable to the economic effects of climate change.
Catastrophic flooding in 2022 – as well as a lethargic bureaucracy and a sagging economy – nearly caused Pakistan to default on its loans before it secured another IMF bailout.
