Lahore: Pakistan has achieved the remarkable feat of finalizing a $3 billion bailout arrangement with the highly regarded International Monetary Fund (IMF) after experiencing an unforeseen eight-month setback. The agreement, subject to approval by the IMF’s board, aims to address Pakistan’s worst economic crisis since gaining independence from Britain. Financial mismanagement, a global energy crisis, and devastating floods in the previous year have severely impacted the country’s economy.
To secure the deal, Pakistan’s central bank raised its primary interest rate to a record high of 22%. Nathan Porter, the IMF’s mission chief for Pakistan, attributed the country’s economic struggles to external shocks such as catastrophic floods and international commodity price spikes. The stagnant economic growth necessitated urgent measures to stabilize the situation.
The approval of the bailout agreement by the IMF’s Executive Board is expected in the coming weeks. This deal provides Pakistan with much-needed economic relief and breathing space. However, experts emphasize the importance of this opportunity to transition from immediate relief to long-term economic recovery.
Amidst its journey, Pakistan persistently encounters noteworthy complications such as soaring inflation rates, scarcity in foreign reserves, and precarious macroeconomic stability. A striking record was set when the annual inflation rate of the country escalated to an unprecedented height of approximately 38% during May. The $3 billion funding, allocated over nine months, exceeds initial expectations.
Pakistan had been awaiting the release of the remaining $2.5 billion from a $6.5 billion bailout package agreed upon in 2019, which expired recently. Foreign exchange reserves fell to a critically low level, covering less than three weeks of imports.
Political tensions and clashes between former Prime Minister Imran Khan supporters and law enforcement have further unsettled financial markets. Imran Khan’s arrest on corruption charges in May, later deemed illegal by the Supreme Court, added to the country’s challenges. The Pakistani rupee depreciated by approximately 40% against the US dollar over the past year. In addition to the IMF bailout, international donors have pledged more than $9 billion to assist Pakistan’s recovery from the devastating floods of 2022.