The IMF has approved a 39-month USD 6 billion loan for cash-strapped Pakistan with tough conditions to address its balance of payment crisis and help the country's ailing economy return to "sustainable growth".
Pakistan approached the International Monetary Fund (IMF) in August 2018 for a bailout package after the Imran Khan government took over.
"The Executive Board of the IMF approved a 39-month extended arrangement under the Extended Fund Facility (EFF) for Pakistan for an amount of SDR 4,268 million (about USD 6 billion or 210 per cent of quota) to support the authorities' economic reform programme," the Washington-based global lender said in a statement.
The USD 6 billion financial aid includes an immediate disbursement of USD 1 billion to help Pakistan address its balance of payment crisis.
"The remaining amount will be phased over the duration of the programme, subject to four quarterly reviews and four semi-annual reviews," the IMF said in a statement, indicating that Pakistan needs to take tough austerity measures in the coming three years.
"The EFF-supported programme will help Pakistan to reduce economic vulnerabilities and generate sustainable and balanced growth focusing on: a decisive fiscal consolidation to reduce public debt and build resilience while expanding social spending," the statement said.
It will also support a flexible, market-determined exchange rate to restore competitiveness and rebuild official reserves; to eliminate quasi-fiscal losses in the energy sector; and to strengthen institutions and enhance transparency, the statement added.
Following the IMF Executive Board discussion, First Deputy Managing Director and Acting Chair, David Lipton said that Pakistan was facing significant economic challenges on the back of large fiscal and financial needs and weak and unbalanced growth.
In this context, the authorities' programme aims to tackle long-standing policy and structural weaknesses, restore macroeconomic stability, catalyze significant international financial support, and promote strong and sustainable growth, Lipton said in a statement.
Meanwhile, Dr Abdul Hafeez Shaikh, Advisor to Pakistan prime minister on Finance, in Islamabad said the IMF's move is a testimony of the government's resolve to ensure financial discipline and sound economic management in the country.
In a tweet, he said the IMF granted the loan to support Pakistan's economic reform programme.
"Our programme supports broad based growth by reducing imbalances in the economy. Social spending has been strengthened to completely protect vulnerable segments," he said.
A structural reform agenda, which includes improving public finances and reducing public debt through revenue reforms, is the key part of the programme, Shaikh added.
Pakistan last month reached an agreement with the IMF on the bailout package after marathon talks.
Prime Minister Khan changed the entire economic team including the finance minister, chief of State Bank of Pakistan (SBP) and head of Federal Bureau of Revenue (FBR) under criticism for failure to improve the economy.
The latest deal is the 22nd bailout package since Pakistan became member of the IMF in 1950.
Pakistan has so far received billions in financial aid packages from friendly countries like China, Saudi Arabia and the UAE during the current fiscal year.
However, mounting economic headwinds forced the Pakistan government to turn to the IMF.
Last month, Pakistan secured a bailout package of USD 3 billion from oil-rich Qatar.
Earlier, China gave USD 4.6 billion in shape of deposits and commercial loans and Saudi Arabia provided USD 3 billion cash deposit and USD 3.2 billion oil facility on deferred payments. The United Arab Emirates also provided USD 2 billion cash deposit.
With foreign exchange reserves shrinking to only USD 7.3 billion, less than the equivalent of two months' worth of imports, and the budget deficit set to top seven per cent of gross domestic product this year, Pakistan faces tough economic medicine to tackle problems that have been years in the making.
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