Pakistan received final approval to disburse about $700 million in aid from the International Monetary Fund, boosting the embattled South Asian economy ahead of next month's elections.
The IMF's board of governors approved the loan, the Washington-based lender said in a statement on Thursday. The country's dollar bonds were among the biggest gainers in emerging markets that day, with 2026 notes rising 3.1 cents to around 70 cents against the dollar.
Pakistan's performance under the program “has supported significant progress in stabilizing the economy,” Antoinette Sayeh, deputy managing director of the IMF, said in a statement on the website. “There are now tentative signs that activity is picking up and external pressure is easing.”
Pakistan's economy is expected to grow 2% in fiscal 2024 after contracting in the previous year, the IMF said. The country's dollar bonds delivered returns of more than 90% last year as default risk declined after the IMF bailout, which catapulted them to the top spots in emerging markets.
Elections
The IMF funds are crucial for Pakistan to obtain financing from other creditors, such as Saudi Arabia, and will provide a boost to Pakistan's interim government led by Prime Minister Anwaar-ul-Haq Kaka ahead of elections. scheduled for February.
Despite the aid, Pakistan remains under financial pressure. The nine-month IMF program expires in March and interim Finance Minister Shamshad Akhtar has already indicated that the country may need another IMF loan to support the economy. Pakistan has a debt burden of about $1 billion dollars as of April.
The IMF said on Thursday that Pakistan needs a market-determined exchange rate to absorb external shocks and tight monetary policy to ensure inflation returns to more moderate levels. The country also needs to boost foreign reserves, the IMF said, with the latest data showing reserves at $8.2 billion at the start of January.
The rupee has stabilized in recent months after falling to a record low in early September. The currency was trading at 281 rupees per dollar on Thursday.
The IMF has now disbursed a total of about $1.9 billion under the program, the IMF said. The approval came after the IMF board completed its initial review of the $3 billion Stand-By Arrangement program approved in July, and followed a staff-level agreement in November.
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