Pakistan has achieved a crucial milestone in its economic recovery journey, securing initial approval from the International Monetary Fund (IMF) for the release of the next loan tranche from a $3 billion bailout program.
According to a Bloomberg report, the announcement came as the Washington-based lender revealed a staff-level agreement, signalling a green light for Pakistan to access a payout of approximately $700 million, contingent on approval from the IMF’s executive board. The funding is deemed essential for Pakistan to avoid defaulting on debt obligations as the government intensifies efforts to rectify economic imbalances, such as adjusting gas prices and combating the illicit dollar trade.
According to Bloomberg, IMF Managing Director Kristalina Georgieva commended Pakistan’s commitment to the program. She mentioned that the authorities, particularly the finance minister, deserved credit for navigating a very challenging period and adhering to the program they had in place.
The IMF's financial support is viewed as a catalyst for Pakistan's fiscal recovery, generating optimism among investors and resulting in a more than 50 per cent return on its dollar bonds this year. The KSE-100 Index, Pakistan's benchmark equity gauge, has stood out as one of the top performers globally since the IMF deal in July.
The positive market sentiment underscores the potential impact of the IMF program on Pakistan's economic trajectory. Dollar bonds due April 2031 held steady at about 49 cents on the dollar in early Asian trading on Thursday, reflecting the market's measured response to the news. However, the financial landscape remains intricate, with risks looming, including inflationary pressures and dependence on external financing from creditors, particularly countries in the Middle East.
Given the financing risks and the impending election, Goldman Sachs Group Inc. issued a warning in October that the strength of the Pakistani rupee would not last.
While a nascent economic recovery is underway, the IMF team, led by Nathan Porter, has cautioned that Pakistan remains exposed to "significant external risks." The team's endorsement of the staff-level agreement acknowledges the progress made by Pakistan in adhering to the conditions of the IMF program.
(With inputs from Bloomberg)
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