WASHINGTON - The International Monetary Fund (IMF) has approved a financial assistance package of $6.7 billion for Pakistan, boosting Prime Minister Nawaz Sharif’s efforts to tackle the country’s severe financial crisis.
The IMF said the Executive Board approved the loan on Wednesday. It will allow the release of a first installment of $540 million with the remainder paid out over three years, subject to the completion of quarterly reviews, the Washington-based global lender said.
According to the IMF, the programme is expected to help the Pakistani economy rebound, forestall a balance of payments crisis and rebuild reserves, reduce the fiscal deficit, and undertake comprehensive structural reforms to boost investment and growth.
“Adherence to the programme is also expected to catalyse the mobilisation of resources from other donors,” the IMF said.
Pakistan’s foreign currency reserves have been severely depleted over the past two years. To secure the loan, it had to commit to changes in the economy designed to increase growth and improve financial stability. The measures aim to bring down the deficit, reduce pervasive electricity shortages and increase the country’s poor rate of tax collection.
The three-year arrangement was approved by the IMF Executive Board under the Extended Fund Facility (EFF).
Despite the challenges it faces, Pakistan is a country with abundant potential, given its geographical location and its rich human and natural resources, it added.
Agencies add: Two top finance ministry officials in Pakistan announced the Fund’s approval of a package in August, pending the board’s decision and Pakistan’s progress on fiscal reforms.
The new loan will arrive just in time. As of August, the central bank had only about $5 billion left in foreign currency reserves, enough to cover less than five weeks of imports.
The Asian Development Bank, one of Pakistan’s major lenders, estimates that Pakistan needs $6 billion to $9 billion to meet its obligations, including about $5 billion in outstanding debt on an earlier $11 billion IMF loan package.
Pakistan averted a balance of payments crisis in 2008 by securing the $11 billion IMF loan. This was suspended two years ago after economic and reform targets were missed.
This time around, the government had to fulfill certain conditions set by the IMF before the loan could be approved, including slashing costly subsidies on electricity and sending out notices to 10,000 delinquent taxpayers.
Pakistan has one of the lowest tax-to-GDP ratios in the world. The IMF wants it to do more to tackle rampant tax evasion by the wealthy elite.
Pakistan gets $540 million immediately, and the rest will be disbursed after regular reviews of the programme, the Fund said.