Pakistan inks $3bn funding arrangement with IMF to prevent debt default

Prime minister Shehbaz Sharif says pact will put nation ‘on path of sustainable economic growth’

Pakistans finance minister Ishaq Dar speaks during a press conference in Islamabad (AFP via Getty Images)

Pakistan and the International Monetary Fund (IMF) have signed a staff-level pact worth $3bn (£2.3bn) on Friday as the South Asian nation attempts to return from the brink of default amid continuing financial crisis.

The stand-by arrangement (SBA), working as a bridge loan between the global agency and Pakistan, will help as a temporary relief and aid it in achieving economic stability.

Pakistan prime minister Shehbaz Sharif said the pact will put the nation “on the path of sustainable economic growth”.

The deal comes just hours before Pakistan’s existing agreement with the IMF was set to lapse and will be implemented subject to approval by the global financial agency in July.

Formal documents sealing the agreement will be sent by the IMF to Pakistan later on Friday, the country’s finance minister Ishaq Dar said, adding that he would “sign, seal and return by tonight (Friday)”.

Pakistan has been rocked by sky-high inflation, first signs of which emerged in May 2022, and has continued to deplete the country foreign exchange reserves which were barely enough to cover one more month of controlled imports.

Without the IMF’s deal at the 11th hour, Pakistan’s economic crisis could have spiralled into a debt default, becoming the second nation in south Asia after Sri Lanka to hit the lowest ebb of financial crisis.

The $3bn secured in funding from the IMF, spread over nine months, is higher than anticipated. The country was awaiting the release of the remaining $2.5bn from a $6.5bn bailout package agreed in 2019, which expires on Friday.

The IMF deal will also help Islamabad unlock other bilateral and multilateral external financing and debt rollovers, particularly from friendly countries like Saudi Arabia and the UAE, which have already pledged around $3bn.

"This will support near-term policy efforts and replenish gross reserves, with the aim of bringing them to more comfortable levels," the IMF said.

A team of IMF has been in Pakistan since earlier this year, helping Islamabad take a slew of policy measures, including a revised 2023-24 budget last week to meet the lender’s demands.

The announcement on Friday, coming at the festive time of Eid, helped the country’s sovereign dollar bonds trade higher, resulting in the biggest gains for the 2024 issue, up more than 8 cents at just above 70 cents in the dollar, reported Tradeweb data.

Pakistan’s domestic stock and currency markets were closed on Friday due to Eid festival holidays.