Crisis-hit Pakistan and IMF reach a $3 billion funding agreement

Crisis-hit An agreement has been reached at the staff level between Pakistan and the International Monetary Fund (IMF) about the provision of funding in the amount of $3 billion (£2.4 billion).

The completion of the transaction, which must first receive authorization from the board of the international lender, has been pushed back by eight months. The South Asian nation, which gained its independence from Britain in 1947, is currently going through the biggest economic crisis it has had since winning its independence.

In an effort to ensure that the agreement is reached, Pakistan's central bank raised the country's benchmark interest rate to a new all-time high of 22% on Monday according to sources. The economy of Pakistan, which had been struggling due to years of financial mismanagement, was pushed to the brink of catastrophe last year by a global energy crisis and devastating floods.

Nathan Porter, director of the IMF's mission in Pakistan, stated that the economy has encountered a number of external shocks, including the catastrophic floods of 2022, which affected the lives of millions of Pakistanis, and an international commodity price rise in the aftermath of Russia's war in Ukraine. The economy has stalled as a consequence of these shocks and policy errors, he added. 

Once agreed upon at the staff level, the IMF's Executive Board typically approves such agreements. In the coming weeks, the board is anticipated to consider the agreement. According to Katrina Ell, senior economist at Moody's Analytics, the agreement is not indicative of the end of Pakistan's economic difficulties. She added that the high inflation, limited foreign reserves, and a lack of macroeconomic stability require time and sustained fiscal discipline to overcome.

The $3 billion in funding, which will be distributed over nine months, exceeds expectations. The deadline for releasing the remaining $2.5 billion of a $6.5 billion assistance package that was agreed upon in 2019 passed last Friday, and Pakistan was waiting for the money to be released.

The nation of nearly 230 million people has been struggling for years to get its economy on a stable footing. This year, the country's foreign exchange reserves dropped to an amount that is less than sufficient to cover imports for three weeks.

The violent fights that broke out between supporters of Pakistan's former prime minister Imran Khan and police have caused tremors to be felt in the financial markets. In May, Mr. Khan was detained on suspicion of corruption. This action, however, was ruled to be unlawful by the highest court in the land.

In comparison to the value of one US dollar, the Pakistani rupee has experienced a depreciation of around forty percent during the course of the previous year. In a separate development, contributors from all around the world have together offered more than $9 billion in aid to help Pakistan rebuild from the devastation that was wrought by the floods in 2022.

It was predicted that the cleanup and restoration of the damage caused by the accident would cost more than $16 billion.