Pakistan Secures $3B IMF Bailout Deal

Facts

• On Friday, Pakistan and the International Monetary Fund (IMF) reached a staff-level agreement on a nine-month $3B stand-by arrangement expected to be approved by the IMF's executive board by mid-July.¹
• The deal — which comes on the day the Extended Fund Facility (EFF) was scheduled to expire — is expected to help Pakistan, which is battling an acute balance of payments crisis and falling foreign exchange reserves.²
• The short-term financial package — set to replace the remaining $2.5B from a $6.5B EFF agreed in 2019 — will unlock an upfront amount of $1.1B after the IMF board approval, exceeding expectations and prompting gains in Pakistan's sovereign dollar bonds.³
• To clinch the deal, Pakistan's lawmakers revised the FY 2023-24 budget to introduce new taxes and spending cuts while its central bank climbed its key benchmark to a record high after implementing an off-cycle 100 basis points increase.⁴
• In the wake of the Ukraine War, Pakistan's economy has been pushed to the brink by external shocks. The country's currency has fallen by around 40% against the US dollar over the last year, while the annual inflation rate hit a fresh record high of almost 38% in May.⁵
• The economic woes of the South Asian nation have been further aggravated by last year's cataclysmic floods and recent deadly protests over the arrest of former PM Imran Khan on corruption charges.⁶

Sources: ¹DAWN, ²Brecorder, ³Reuters, ⁴Al Jazeera, ⁵BBC News, and ⁶CNN.

Narratives

• Pro-establishment narrative, as provided by DAWN. Though Pakistan wasted nine months trying to find an alternative to a previously agreed bailout deal, this new stand-by agreement has given the country a second chance to complete a job that should have already been done. This is just the first step to resolving the crisis, but it's vital to prevent a tragic default in the run-up to national elections by unlocking inflows from bilateral and multilateral partners.
• Establishment-critical narrative, as provided by Express Tribune. There's plenty of evidence that the Western liberal capitalist order is crumbling, but the Pakistani political elite has decided to bow to the IMF's diktats of austerity as if there was no way out of this crisis other than a bailout that undermines the nation's sovereignty. No matter how painful it could be, Islamabad should have followed the Chinese example to revamp its economy on a truly sustainable path.