IMF Approves $1.3B Loan to Pakistan for Economic Reforms, Climate Resilience

ISLAMABAD – Pakistani government clinched $1.3 billion from International Monetary Fund (IMF) on first review for 37-month Extended Arrangement under Extended Fund Facility (EFF) and new 28-month arrangement under Resilience and Sustainability Facility (RSF).

After pending approval from the IMF’s board, the government will gain access to $1.3 billion through a new 28-month loan program aimed at enhancing climate resilience. The deal will also release an additional $1 billion from the $7 billion bailout program, bringing total disbursements to $2 billion.

Nathan Porter, the IMF’s mission chief to Pakistan, explained that the staff-level agreement (SLA) was reached between the IMF team and Pakistani authorities regarding both the first review of the Extended Fund Facility (EFF) and a new 28-month arrangement under the IMF’s Resilience and Sustainability Trust (RST), with total access to around $1.3 billion over this period.

Pakistan-IMF Deal

The South Asian nation is set to receive an additional $1 billion from global lender as part of the country’s ongoing economic recovery efforts. This disbursement comes under the IMF’s Extended Fund Facility (EFF) program, which has been crucial in stabilizing Pakistan’s economy following years of challenges.

In a statement from the IMF, the fund confirmed that, once approved by the board, Pakistan will have received a total of $2 billion under the current EFF, reinforcing its financial position. The IMF emphasized that while the country’s economic growth remains moderate, inflation has dropped to its lowest level since 2015, and financial conditions have significantly improved. After soaring to nearly 40% in mid-2023, inflation has gradually declined to 1.5% by February, though it is expected to rise to 3% in April.

The IMF praised Pakistan for the progress made over the past 18 months, noting that despite global economic challenges, the country has been able to restore macroeconomic stability and rebuild investor confidence. However, it also warned of risks, including geopolitical shocks, commodity price fluctuations, and tightening global financial conditions, which could undermine the gains made so far.

Alongside the EFF, Pakistan had previously requested $1 billion from the IMF’s Resilience and Sustainability Facility (RSF). The RSF is designed to help countries build resilience against climate-related disasters through long-term reforms. The funding is offered at more favorable terms, repayable over 30 years, with a 10-year grace period.

The IMF has reiterated the importance of climate resilience in Pakistan’s long-term recovery. Climate-related risks remain a significant challenge, and the Fund urged the country to continue pursuing reforms aimed at building resilience, improving public finances, and ensuring price stability. Pakistan has committed to advancing these reforms under both the EFF and RSF programs, with a focus on fiscal consolidation, structural reforms, and cost-reducing measures in the energy sector.

Read more: “Pakistan, IMF Reach Staff-Level Agreement on $7 Billion Extended Fund Facility

Finance Minister Muhammad Aurangzeb expressed confidence in the government’s strategy, highlighting the role of the IMF support in stabilizing Pakistan’s $350 billion economy and averting a potential default. With the disbursement of the $1 billion expected ahead of the annual budget in June, the government is optimistic about maintaining economic stability and continuing its reform agenda, which includes structural changes in taxation, energy, and state-owned enterprises.

As Pakistan continues to navigate its economic recovery, the IMF’s financial support remains a critical lifeline in the effort to secure sustainable growth and resilience against both economic and climate-related challenges