ISLAMABAD: Pakistan’s benchmark share index hit a life-time high in opening trade on Thursday, hours after the International Monetary Fund’s board approved a long-awaited $7 billion bailout deal for the struggling economy.
The IMF said the new program will require “sound policies and reforms” to strengthen macroeconomic stability and address structural challenges alongside “continued strong financial support from Pakistan’s development and bilateral partners.”
An immediate disbursement of about $1 billion will take place, an IMF statement said.
Pakistan’s stock benchmark index rose in early trade to a record high of 82,905.73 points, before reversing those gains later in the day to close 0.7 percent down at 81,657.
“We will need to take difficult decisions if we want to make it our last program with the IMF,” Pakistan’s junior finance minister, Ali Pervaiz Malik, told local Geo News TV on Thursday.
Prime Minister Shehbaz Sharif thanked the IMF managing director Kristalina Georgieva and said the country would continue to implement the tough economic reform agenda, he told reporters in New York on the sidelines of United Nations general assembly on Wednesday.
Georgieva congratulated Pakistan for moving forward with “home-defined” reforms.
“The economy is on the sound path,” she told reporters after the board meeting. “Growth is up and inflation is down,” she said.
Islamabad had been working on implementing conditions, which Sharif had previously called “strict” to secure the 37-month loan program agreed in July. One condition was to secure additional external financing, which the country was struggling to do.
Local media reported that Islamabad recently signed its most expensive commercial loan ever for $600 million at 11 percent interest as a last-ditch bid to cover the financing gap and secure board approval.
However, an IMF spokesperson said on Friday that the lender was unaware of a loan at this rate and that it was not necessary for the purposes of the program’s financing assurances.
REFORMS AND RISKS
The IMF said in its statement that Pakistan had taken key steps to restore economic stability with consistent policy implementation under the 2023-24 standby arrangement.
It added that growth had rebounded to 2.4 percent and inflation has receded significantly, falling to single digits, amid appropriately tight fiscal and monetary policies.
A contained current account and calm foreign exchange market conditions have allowed the rebuilding of reserve buffers, and the central bank of Pakistan has been able to cut the policy rate by a total of 450 bps since June, the statement said.
Despite this progress, it said, Pakistan’s vulnerabilities and structural challenges remain formidable, adding that the tax base remains too narrow.
“Without a concerted adjustment and reform effort, Pakistan risks falling further behind its peers,” it warned.
Pakistan has been struggling with boom-and-bust economic cycles for decades, leading to more than 20 IMF bailouts since 1958.
The South Asian country is the IMF’s fifth-largest debtor, owing the Fund $6.28 billion as of July 11, according to the lender’s data.
