Wednesday February 21, 2024

IMF releases $700m loan tranche for Pakistan

UAE confirms rollover of $2 billion, State Bank of Pakistan announces

January 17, 2024
The seal for the International Monetary Fund is seen in Washington, US, on January 10, 2022. — AFP
The seal for the International Monetary Fund is seen in Washington, US, on January 10, 2022. — AFP

In a significant development for Pakistan's struggling economy, the International Monetary Fund (IMF) has disbursed $700 million as part of the previously agreed upon bailout programme, State Bank of Pakistan (SBP) Governor Jameel Ahmed confirmed Wednesday.

The loan was approved after the IMF Executive Board completed its first review last week, bringing the total disbursements under the $3 billion Standby Arrangement (SBA) to about $1.9 billion.

Following the board’s approval last week, Antoinette Sayeh, Deputy Managing Director and Chair, had said: “There are now tentative signs of activity picking-up and external pressures easing.”

The nine-month SBA approved by the Executive Board on July 12 last month, aims to provide a policy anchor for addressing domestic and external balances and a framework for financial support from multilateral and bilateral partners.

To secure the bailout, Pakistan implemented tough IMF-requested measures: a revamped budget, a record interest rate hike, and painful increases in electricity and gas prices. 

Under the bailout deal, the IMF also got Pakistan to raise $1.34 billion in new taxation to meet fiscal adjustments. The measures fuelled all-time high inflation of 38% year-on-year in May, which is still hovering above 30%.

“The authorities took challenging steps to bring both electricity and natural gas prices closer to costs in 2023. Continuing with regularly-scheduled adjustments and pushing cost-side power sector reforms are vital to improving the sector’s viability and protecting fiscal sustainability,” Sayeh said. 

As Pakistan has secured the IMF loan, analysts expect the struggling South Asian nation to secure more multilateral and bilateral loans. 

In a statement, the SBP also confirmed that the United Arab Emirates (UAE) has rolled over two $1 billion deposits, which were maturing soon, providing respite to the friendly country.

“UAE has confirmed rollover of its two deposits of US$1.0 billion each placed with State Bank of Pakistan for another one year which were maturing in January 2024,” the statement mentioned.