Pakistan Receives IMF Funding and UAE Loan Rollover Boosting Economic Support

On Thursday, Pakistan secured a significant boost to its financial stability by acquiring a $700 million disbursement from the International Monetary Fund (IMF) as confirmed by the State Bank of Pakistan (SBP). This transaction marks a key milestone within the country's ongoing bailout program with the IMF.

The funds, amounting to Special Drawing Rights (SDR) 528 million, which translates to approximately $705.6 million, were released following the successful completion of the first review by the IMF's Executive Board under the Stand-By Arrangement (SBA). The SBP announced that these funds would be incorporated into their reserves, with upcoming financial statistics reflecting the increase for the week concluding on January 19, 2024.

In parallel, the United Arab Emirates (UAE) has played a pivotal role in strengthening Pakistan's economic position by confirming the rollover of two substantial deposits, each worth $1.0 billion, that were originally set to mature in January 2024. This agreement will extend these deposits with the SBP for an additional year.

The infusion of about $700 million from the IMF increases the aggregate disbursements under the SBA to $1.9 billion. The IMF’s Executive Board granted its approval of the first review of Pakistan's economic reform efforts, signalling confidence in the nation's economic measures roughly two months post a mutually agreed staff-level arrangement. Pakistan initially entered into a nine-month SBA with the IMF in July 2023 to secure $3 billion in assistance. This support was intended to bridge the gap before a longer-term agreement could be established.

The collaboration of international financial institutions such as the IMF, World Bank, Asian Development Bank (ADB), and Asian Infrastructure Investment Bank (AIIB) has played a crucial role in helping Pakistan maintain its foreign reserve levels. Despite the positive developments, the IMF revised down Pakistan’s economic growth projection for the current fiscal year to 2%, a decrease from the 2.5% expectation set in July.

In tandem with growth projections, inflation expectations have also been adjusted. The IMF has reduced the inflation rate forecast from 26% to approximately 24%, which could potentially pave the way for reduced interest rates in the country.

Continuing on a path of fiscal consolidation is a key component of the IMF's guidance to Pakistan, aiming to cut public debt but still safeguarding developmental needs. The IMF's statement highlights Pakistan's commitment to reaching a primary surplus of at least 0.4% of GDP in FY24, a goal to be supported by federal and provincial budget constraints and enhanced revenue—backed by alternate measures if needed. Additionally, Pakistan is expected to continue its shift towards a market-determined exchange rate.

Pakistan's reform initiatives will also target state-owned enterprises and governance reforms to stimulate investment and employment opportunities, while bolstering social assistance programs. The IMF, adjusting its forecasts, now anticipates Pakistan's foreign loan requirements for the fiscal year to be around $25 billion and has also lowered its inflation projections to 24% for the fiscal year.

The commitment to election scheduling in Pakistan was noted as a criterion met by the government, which may have led the IMF to be lenient on certain conditions that previously jeopardized the success of a past $6.5 billion bailout program. The IMF is also expanding its oversight to include the Special Investment Facilitation Council (SIFC).

Amid updated fiscal projections, the IMF estimates foreign remittances to Pakistan to be $29.4 billion, a drop from the prior forecast of $32.9 billion. Current expenditures for the fiscal year are expected to be around Rs14.6 trillion, signifying an increase from earlier estimates. Whereas, the development spending is projected to be Rs782 billion, which is actually lower than the allocation approved by the National Assembly in June.

Pakistan, IMF, UAE, Economy, Finance, Loan, Bailout, Growth, Inflation, Foreign, Reserves, Fiscal, Consolidation, Debt, Reform