ISLAMABAD (Agencies): Pakistan and the International Monetary Fund (IMF) have reached an agreement at the staff level for a $3 billion stand-by arrangement. This decision brings relief to Pakistan, which has been grappling with a severe balance of payments crisis and dwindling foreign exchange reserves, pushing the nation perilously close to default.

The deal, subject to approval by the IMF board in July, comes after an eight-month delay. The funding, spread over nine months, exceeds Pakistan’s expectations. The country 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.

IMF official Nathan Porter stated that the new stand-by arrangement builds upon the 2019 program. Pakistan’s economy has faced numerous challenges in recent times, including devastating floods and commodity price hikes following the war in Ukraine. These shocks, along with policy missteps and constraints on the foreign exchange market, have resulted in stalled economic growth and high inflation, including for essential items.

Porter emphasized that the new arrangement will serve as a policy anchor and a framework for financial support from multilateral and bilateral partners in the future. The IMF’s press release highlighted that the stand-by arrangement will support Pakistan’s efforts to stabilize the economy, preserve macroeconomic stability, and provide a platform for financing from various partners.

To overcome current challenges, Pakistan must focus on steadfast policy implementation, including fiscal discipline, a market-determined exchange rate, and progress in energy sector reforms to promote climate resilience and improve the business climate, according to the IMF. The lender underscored the importance of executing the budget as planned and resisting pressures for unbudgeted spending or tax exemptions.

Furthermore, the IMF noted that the State Bank of Pakistan has withdrawn import prioritization guidance and is committed to ensuring a fully market-determined exchange rate. The central bank should proactively address inflation and maintain a foreign exchange framework free of restrictions on payments and transfers for international transactions.

The press release also mentioned Pakistan’s efforts to obtain new financing and secure the rollover of debt, with the aim of replenishing gross reserves. The country’s program includes initiatives to strengthen the energy sector, improve state-owned enterprise governance, and enhance the public investment management framework, particularly for climate change resilience projects.

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