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IMF Reaches Agreement with Pakistan for $3 Billion in Bailout

The International Monetary Fund (IMF) has announced that it has reached a staff-level agreement with Pakistan, offering $3 billion in short-term financial assistance. The decision comes as a relief to Pakistan, which has been on the verge of default and facing a severe balance of payments crisis.

Pakistan gets $3Billion Bailout

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Subject to approval by the IMF board in July, the deal was reached just hours before the expiration of the current agreement with the IMF. Although the funds provided are essentially a bridge loan, they offer significant respite to Pakistan as it grapples with its economic challenges, including dwindling foreign exchange reserves.

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Referred to as the Stand-by Arrangement (SBA), this agreement is expected to contribute to Pakistan’s economic stability. Prime Minister Shehbaz Sharif expressed his optimism, stating that it would set the country “on the path of sustainable economic growth, God willing.”

Pakistan

Formal documentation regarding the agreement will be received by Pakistan later today, according to Finance Minister Ishaq Dar, who stated that he would promptly “sign, seal, and return” the documents to the IMF.

Following the announcement, Pakistan’s sovereign dollar bonds experienced an increase in trading value. The greatest gains were seen in the 2024 issue, which rose by over 8 cents to just above 70 cents on the dollar, as reported by Tradeweb data.

The rise in shorter-dated bonds was particularly notable, reflecting lingering skepticism regarding the country’s long-term fiscal outlook. Analysts warn that without an IMF deal, Pakistan’s economic crisis could have escalated into a full-blown debt default.

The $3 billion funding, distributed over nine months, exceeds expectations and is likely to replace the remaining $2.5 billion from a longer-term bailout package known as the Extended Fund Facility, agreed upon in 2019 and expiring today.

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In addition to the immediate financial assistance, the IMF funding is expected to unlock further external financing and facilitate debt rollovers, especially from friendly nations like Saudi Arabia and the United Arab Emirates. These countries have already committed approximately $3 billion in support.

The IMF emphasized that the funding will aid Pakistan’s near-term policy efforts and contribute to the replenishment of its gross reserves, aiming to bring them to a more comfortable level.