Pakistan has been approved for a $6.7 billion emergency loan package from the International Monetary Fund according to a statement from the lender earlier today. The money will be given to Pakistan over a three year period and will serve to stabilize the country’s economy and bolster the country’s foreign reserves.
According to a Bloomberg piece on the loan, Pakistan’s foreign reserves fell 42 percent this year to $5.2 billion by the closing days of August. That left the country with less foreign reserves than it needed to cover imports over the short term. Pakistan has been suffering from a balance of payments issue for several years, and this is not the first IMF program to try to resolve the issue.
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Pakistan IMF deal
Pakistan was entitled to receive $11.3 billion from the IMF under the terms of a previous loan deal, but the country failed to meet the targets set for it by the IMF under the terms of that loan. That deal expired in September of 2011. Today’s loan will see Pakistan get hold of around $500 million in aid initially, while the rest of the program is tied up in reform targets the country must meet in the next three years.
Sayem Ali, an economist quoted by Bloomberg, said, “The rupee is under pressure, reserves are at around $5 billion, large payments are in the pipeline. It was a very uneasy situation.” Pakistan is facing consistent energy shortages and civil unrest as it deals with violence from unstable neighbors, like Afghanistan, and no energy security.
The IMF deal is hoped to shore up Pakistan as it attempts to reform its economy in order to balance its foreign reserves and ensure that it doesn’t require another bailout from the emergency lenders. Finance Minister Ishaq Dar is going to oversee “very robust reform” programs attached to the deal.
Pakistan had its most recent elections in May. The polls saw Prime Minister Nawaz Sharif take the helm for his third term. The results left Sharif in charge of the difficult economy of Pakistan. Inflation is at around 7%, energy is unstable and, until today, foreign currency was exiting the country in massive amounts.
There has not been any detailed information about the full extent of the reforms expected by the IMF just yet. Whether or not they manage to heal the south Asian country’s economy is difficult to predict.