After two weeks of negotiations, Pakistan and the IMF reached a preliminary agreement for $700 million from a $3 billion bailout package.
On Wednesday, the interim government of Pakistan and the IMF decided to examine the $3 billion fund’s initial assessment.
“Upon approval [from the IMF executive board], about $700 million will become available, bringing total disbursements under the program to almost $1.9 billion,” stated Nathan Porter, head of the IMF mission in Pakistan, in a statement.
This is the second payment under the June 2007 $700 million IMF bailout agreement with Pakistan. The next month, the impoverished government, which was on the verge of default, received the first $1.2 billion, and the IMF ordered it to change its budget and reduce energy and fuel subsidies.
The International Monetary Fund concluded its two-week assessment of Pakistan’s economy on Wednesday, stating that “a nascent recovery is underway, buoyed by international partners’ support and signs of improved confidence.”
Inflation is “expected to decline over the coming months amid receding supply constraints and modest demand,” said the report. The rate of inflation hit 38% in May, the highest in forty years. There is about 30% inflation.
The foreign lender did, however, caution about the nation’s economic fragility.
Pakistan is vulnerable to geopolitical concerns, rising commodity prices, and worldwide financial tightening. It advised continuing resilience initiatives.
Pakistan, a country of 241 million people, has been experiencing political and economic turmoil for almost two years. Less than $4 billion in foreign reserves held by the central bank was insufficient to pay imports for a month. Their external debt for the current fiscal year is more than $20 billion.
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The Pakistani rupee has dropped more than 50% versus the US dollar in only a single year.
Other analysts, however, contend that Pakistan’s macroeconomic fundamentals have improved as a result of the government’s astute policy decisions, which included bringing down inflation to 27% in October.
Energy costs have “significantly increased” in compliance with IMF regulations, and Lahore economist Hina Shaikh told Al Jazeera that the government has taken “bold steps” to ensure that market forces determine the value of the rupee.
“An elected government may be able to negotiate for another package if the government continues to meet the IMF’s conditions,” said a spokeswoman.
Khaqan Najeeb, a former adviser to the Ministry of Finance, stated that Pakistan’s economic measures have delighted the IMF, which is a good thing.
“For Pakistan to meet its future needs for outside funding, it will be necessary for it to collaborate with the IMF.” According to Najeeb, “it is also encouraging to see the lender acknowledging the recent economic recovery and hopeful of a reduction in inflation in the coming months.”
Since there will be national elections in February, Shaikh continued, the results announcement offers “some stability” to the political environment.
“During caretaker setup, these stringent regulations and significant enhancements were and probably will be put into place. She made the argument that an elected government might not favor strict economic measures.
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