LAHORE MIRROR (Reuters) — The International Monetary Fund (IMF) has reached a staff-level pact with Pakistan on $3 billion in short-term financial help, the lender said, a decision long awaited by the South Asian nation which is teetering on the brink of default.
The deal, subject to approval by the IMF board in July, came hours before the current agreement with the IMF expires later on Friday. Although essentially a bridge loan, it offers much respite to Pakistan, which is battling an acute balance of payments crisis and falling foreign exchange reserves.
The so-called Stand-by Arrangement (SBA) will enable Pakistan to achieve economic stability, and put the country “on the path of sustainable economic growth, God willing,” Prime Minister Shehbaz Sharif said.
Pakistan will receive formal documents on the deal later on Friday from the IMF, Finance Minister Ishaq Dar told Reuters, which he said he would “sign, seal and return by tonight.”
He had said on Thursday the deal was expected any time soon.
Pakistan’s sovereign dollar bonds were trading higher after the announcement, with the 2024 issue enjoying the biggest gains, up more than 8 cents at just above 70 cents in the dollar, according to Tradeweb data.
The gains were most pronounced in shorter-dated bonds, reflecting lingering scepticism over the longer-term fiscal outlook for the country.
The country’s domestic stock and currency markets were closed on Friday due to Eid festival holidays.
With sky-high inflation and foreign exchange reserves barely enough to cover one month of controlled imports, analysts say Pakistan’s economic crisis could have spiralled into a debt default in the absence of an IMF deal.
The $3 billion funding, spread over nine months, is higher than expected as it looks set to replace the remaining $2.5 billion from a $6.5 billion Extended Fund Facility longer-term bailout package agreed in 2019, which expires on Friday.
The IMF funding will also unlock other bilateral and multilateral external financing and debt rollovers, particularly from friendly countries like Saudi Arabia and the UAE, which have already pledged around $3 billion.
“This will support near-term policy efforts and replenish gross reserves, with the aim of bringing them to more comfortable levels,” the IMF said.
SOURCE: REUTERS
