IMF reaches deal with Pakistan to unlock $1.3bn

'Over the past 18 months, Pakistan has made significant progress in restoring macroeconomic stability,' fund says

Ramadan traffic in Bolton Market, Karachi. The IMF reached a $1.3 billion deal with Pakistan, pending board approval, under a 28-month climate resilience loan. Reuters

International Monetary Fund staff reached a $1.3 billion deal with Pakistan and approved the first review of the continuing 37-month bailout programme, the IMF said on Tuesday.

Pending board approval, Pakistan can unlock the $1.3 billion under a new climate resilience loan programme spanning 28 months.

It will also free $1 billion for the South Asian nation under its $7 billion bailout programme, which would bring those disbursements to $2 billion.

The programme, secured mid-year last year, has played a key role in stabilising Pakistan's economy and the government has said the country is on course for a long-term recovery.

“Over the past 18 months, Pakistan has made significant progress in restoring macroeconomic stability and rebuilding confidence despite a challenging global environment,” the IMF said.

“Upon approval [by the IMF board], Pakistan will have access to about $1 billion under the EFF, bringing total disbursements under the programme to about $2 billion.”

Pakistan's inflation is forecast to remain steady in March, in the 1 per cent to 1.5 per cent range, the country's Finance Ministry said in its monthly economic outlook, after slowing to its lowest level in almost a decade the previous month.

Inflation in Pakistan has been declining for several months, hitting 1.5 per cent in February, after it soared to about 40 per cent in May 2023.

Pakistan says its $350 billion economy has stabilised under a $7 billion IMF bailout that had helped it stave off default.

“While economic growth remains moderate, inflation has declined to its lowest level since 2015, financial conditions have improved, sovereign spreads have narrowed significantly, and external balances are stronger,” the IMF said about Pakistan.

Islamabad had been awaiting the IMF agreement on the first review of the bailout and disbursement of $1 billion ahead of the country's annual budget, usually presented in June.

The IMF statement also noted what it called elevated downside risks such as geopolitical shocks to commodity prices, tightening global financial conditions, or rising protectionism.

It said such risks could undermine Pakistan's “hard-won macroeconomic stability”.