IMF approves $700 million loan as part of Pakistan bailout

KARACHI: The International Monetary Fund (IMF) on Friday gave the green light for a loan of approximately $700 million to Pakistan as part of a $3 billion bailout package, the fund and the finance ministry announced on Thursday.
This approval comes after the completion of the IMF’s first review of the program and the decision by the board, allowing for an immediate disbursement of special drawing rights worth around $700 million.With this disbursement, the total amount received by Pakistan under the Standby Arrangement (SBA) reaches SDR 1.422 billion (approximately $1.9 billion), according to the IMF.
The loan program was approved in July and has helped the South Asian country avoid a sovereign debt default. Currently, Pakistan is being governed by a caretaker government.
Prior to obtaining the bailout, Pakistan had to implement various measures as demanded by the IMF including revising the budget, increasing the benchmark interest rate, and raising the prices of electricity and natural gas.
In November, an IMF mission led by Pakistan mission chief Nathan Porter concluded its visit, reviewing Pakistan’s progress in meeting the benchmarks set under the SBA. Under the bailout agreement, the IMF also required Pakistan to generate $1.34 billion in new taxation to achieve fiscal adjustments.
However, these measures led to a significant increase in inflation, with the country experiencing a record-breaking 38% year-on-year inflation rate in May, the highest in Asia. Currently, inflation remains above 30%.
“IMF funding along with recent inflows from multilateral lenders will further help the Pakistani rupee, that is fairly stable (over the) last few months,” said Mohammad Sohail, CEO of Topline Securities.
He also mentioned that this new tranche of funds will assist Pakistan in obtaining rollovers from friendly countries such as the United Arab Emirates, China, and Saudi Arabia, ultimately alleviating external debt repayment pressure.
Pakistan’s international bonds, which had already clocked healthy gains earlier on Thursday, soared after the announcement. The 2036 issue enjoyed the biggest gains, jumping 3.5 cents to trade at 62.59 cents in the dollar, Tradeweb data showed.
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