Pakistan gets $1.16 billion loan tranche from IMF

KARACHI: Pakistan has received a $1.16 billion loan installment from the International Monetary Fund (IMF) under the Extended Fund Facility, which will support the country’s foreign exchange reserves and appreciate the local currency.

“Today, SBP has received proceeds of USD 1.16 billion (equivalent of SDR 894 million) after the IMF Executive Board completed the combined seventh and Eight review under the Extended Fund Facility (EFF) for Pakistan,” the State Bank of Pakistan said on its official Twitter handle on Wednesday.

“This will help improve SBP’s foreign exchange reserves and will also facilitate realization of other planned inflows from multilateral and bilateral sources,” the SBP added.

The fresh disbursement comes after the Washington-based lender revived a bailout package for the cash-strapped country. The IMF board approved the loan programme on Monday, saving Pakistan from possible default on its foreign debt repayments.

The IMF’s endorsement will take the total disbursement under the Extended Fund Facility (EFF) to $3.9 billion to Pakistan. The IMF’s board has approved an extension of the EFF till June 2023 instead of September 2022 to support programme implementation and meet the higher financing needs this fiscal year as well as unlock additional financing The board also approved the augmentation of access by SDR 720 million ($1bn) bringing total access to $6.5 billion.

The board appreciated that the Pakistani government made efforts to put the program back on track and a renewed commitment to program policies and targets. This comes after a delay as the seventh review was initially scheduled in March 2022 but got delayed due to non-compliance on key targets.

The IMF also appreciated Pakistan’s authorities for taking measures to address fiscal and external account concerns which were caused due to accommodative policies in FY2022 and spillovers from the war in Ukraine that had put significant pressures on Pak rupee and foreign exchange reserves.

Pakistan’s foreign currency reserves continued to deplete due to the lack of external financing. The central bank’s reserves have fallen as low as $7.8 billion—enough to cover little more than a month of imports.

Pakistan’s economy has been buffeted by adverse external conditions, due to spillovers from the war in Ukraine, and domestic challenges, including from accommodative policies that resulted in uneven and unbalanced growth, according to a statement issued from the IMF after the board meeting.

Steadfast implementation of corrective policies and reforms remain essential to regain macroeconomic stability, address imbalances and lay the foundation for inclusive and sustainable growth, it said.

“The tightening of monetary conditions through higher policy rates was a necessary step to contain inflation. Going forward, continued tight monetary policy would help to reduce inflation and help address external imbalances,” it said.

“Maintaining proactive and data-driven monetary policy would support these objectives. At the same time, close oversight of the banking system and decisive action to address undercapitalized financial institutions would help to support financial stability. Preserving a market-determined exchange rate remains crucial to absorb external shocks, maintain competitiveness, and rebuild international reserves,” it added.