Islamabad, Pakistan – Pakistan and the International Monetary Fund (IMF) have reached a staff-level agreement for the release of $1.1bn from a $3bn bailout package the indebted country needed to avert a sovereign default.
“The IMF team has reached a staff-level agreement with the Pakistani authorities on the second and final review of Pakistan’s stabilisation programme,” the IMF said in a statement on Wednesday.
The United States-based lender said the money will be disbursed after approval by the IMF’s executive board before the deal, agreed last year, expires on April 11.
The announcement came after five days of talks between the IMF and the newly elected government of Prime Minister Shehbaz Sharif in Islamabad.
The IMF said Pakistan’s “economic and financial position has improved” in recent months, but added that growth is “expected to be modest this year and inflation remains well above target” and the South Asian country will need more policy reforms to address “deep-seated economic vulnerabilities”.
Pakistan is desperately seeking financial assistance from global lenders and bilateral partners to shore up its $350bn economy, which has been under severe strain for two years.
Its economy is particularly burdened by debt obligations, which amount to more than $130bn of external debt. The foreign reserves are a paltry $8bn, enough to cover eight weeks of imports in a country that relies on imported goods to fuel its economy.
Meanwhile, inflation, despite a gradual decline, is still at 23 percent, as the currency has lost more than 50 percent of its value against the US dollar in the last two years.
To fight the crisis, Finance Minister Muhammad Aurangzeb recently said the government is looking for a “longer, larger” IMF bailout package once the current deal expires.
Economist Safiya Aftab told Al Jazeera the successful completion of the IMF programme means the government is “seriously attempting to start bringing about [policy] reforms which the IMF has been asking for”.
She, however, warned that a new bailout package being mulled by the government could be tough given the conditions put forward by the lender.
“IMF will turn the screws and demand increase in taxation and broadening the [taxation] net, and the government, as we have seen in the past, often goes for quick solutions which increase the burden on the salaried class,” she said.
Aftab said the government will have to look towards privatising state-owned enterprises in order to generate revenue and cut down expenditure.
“Despite the difficulties, I think the government has no choice but to comply with the requirements,” she said, adding that the short-term effects of a new IMF programme will “certainly lead to more inflation and more burden on the public.”
