Crisis-hit Pakistan strikes $3bn IMF bailout deal In 2024

Pakistan, facing a severe economic crisis, has successfully negotiated a staff-level agreement with the (IMF 2024 FUND) for financial assistance totaling $3 billion (£2.4 billion)."

The country's inflation hit a fresh record high in May

After an eight-month delay, Pakistan, currently grappling with its most severe economic crisis since gaining independence from Britain in 1947, has reached a staff-level agreement with the International Monetary Fund (IMF) for $3 billion (£2.4 billion) in financial support. The agreement is pending approval by the IMF's board.

To secure this deal, Pakistan's central bank took the unprecedented step of raising its primary interest rate to a historic 22% on Monday. The nation's economy, already strained due to years of financial mismanagement, has been pushed to the brink by a global energy crisis and devastating floods that struck the country in the previous year.

Nathan Porter, IMF's mission chief for Pakistan, remarked on the challenges faced by the economy, stating, "The economy has faced several external shocks such as the catastrophic floods in 2022 that impacted the lives of millions of Pakistanis and an international commodity price spike in the wake of Russia's war in Ukraine. As a result of these shocks as well as some policy bad Decisions, economic growth has stalled.

Typically, once agreements are reached at the staff level, they are granted approval by the IMF's Executive Board, which is expected to review the agreement in the coming weeks. This agreement is seen as a lifeline for Pakistan's struggling economy.

Katrina Ell, a senior economist at Moody's Analytics, emphasized the challenges ahead, saying, "High inflation coupled with limited foreign reserves and lacking macroeconomic stability take time and sustained fiscal discipline to overcome." Pakistan's annual inflation rate had surged to nearly 38% in May.

The $3 billion in funding, to be disbursed over nine months, exceeds initial expectations. Pakistan had been awaiting the release of the remaining $2.5 billion from a $6.5 billion bailout package agreed upon in 2019, which expired recently. The country, with a population of over 230 million, has been striving for years to stabilize its economy, with foreign exchange reserves falling to a level covering less than three weeks of imports this year.

Furthermore, violent clashes between supporters of Pakistan's former prime minister, Imran Khan, and law enforcement have rattled financial markets. In May, Khan was arrested on corruption charges, a move subsequently deemed illegal by the country's Supreme Court. Over the past year, the Pakistani rupee has depreciated by approximately 40% against the US dollar.

In a separate development, international donors pledged over $9 billion to aid Pakistan's recovery from the devastating floods of 2022, although estimates indicated that over $16 billion would be needed to fully recover from the disaster.