Pakistan won final approval for the disbursement of about $700 million in aid from the International Monetary Fund, boosting the embattled South Asian economy ahead of elections next month. The IMF’s executive board completed the first review of a 9-month Stand-By Arrangement (SBA) approved last year to support the country’s economic stabilization program, allowing for the disbursement.
The decision will help Pakistan secure financing from other creditors, as the SBA expires in March, and gives confidence to markets that the nation’s caretaker government under Finance Minister Anwaar-ul-Haq Kakar can manage its finances while overseeing elections scheduled for Feb. 8. It also sets the stage for a new IMF program with the nation’s newly-elected government, lowering the risk of a financial panic and giving the next government a clear roadmap to run the economy, experts say.
However, the IMF says the country still faces significant challenges in the near term. Its reserves dipped below three months of import cover earlier this year, and inflation remains elevated, hurting low-income families who spend the bulk of their incomes. The country’s economy is also hampered by weak energy and tax revenues, a heavy reliance on foreign loans to pay for current account deficits, and the need to invest in infrastructure.
To reach its goal of restoring stability, the country needs to “continue with a needed fiscal adjustment while protecting critical social spending; complete the restructuring of state-owned enterprises; re-establish a market-determined exchange rate and proper FX market functioning to absorb external shocks and eliminate FX shortages; push forward with electricity and gas price adjustments aimed at bringing them closer to costs; and maintain an appropriately tight monetary policy geared toward disinflation,” the IMF said in a statement Thursday. It added that “in addition, continued progress on structural reforms — including SOE governance, climate resilience, and energy sector viability — will be crucial for economic recovery.”
Michael Kugelman, director of the South Asia Institute at the Wilson Center in Washington, said Islamabad waited until the final hour to take some of the painful policy steps needed to stabilize the economy. “If they had taken these steps earlier, much of the drama and fraught negotiations over recent months would likely not have been necessary,” he said.
The IMF’s executive board voted to approve the loan at its meeting on Thursday. The move was a “broad success” and “reflects the strong commitment of the authorities to implement the agreed policies,” the fund’s managing director Kristalina Georgieva said in a statement. Pakistan’s dollar bonds were among the biggest gainers in emerging markets for the day, with 2026 notes jumping 3.1 cents to about 70 cents on the dollar.