The IMF approves in in principle a $ 6 billion bailout package for Pakistan

The International Monetary Fund has agreed to relaunch a $ 6 billion bailout package for Pakistan after more than a month of discussions, providing respite for its faltering economy, even as the government will have to push through major reforms.

The International Monetary Fund said it reached a staff level agreement with Pakistan to review the loan. The agreement provides for the implementation of preliminary actions, in particular in report on financial and institutional reforms, before final approval by the IMF Executive Board.

The deal comes in one moment in which Pakistan’s economy is struggling with due to hyperinflation in part to the repressed demand, to the increase in global prices of materials prime and the increase in imports.

The Central Bank of Pakistan raised its benchmark interest rate last week more than expected, with the Pakistani rupee in 1.2% increase to 173.16 per dollar. Bonds too in The country’s dollars rose with the yield on bonds in expiration in 2031 in 33 basis points drop, the largest increase since it was issued in April.

“After a long and painful delay, Pakistan is finally back on track with its IMF program,” said Nicholas Yap, analyst at Nomura International. He added that this would help alleviate underlying concerns in light of the pressure on the country’s checking account and currency.

Pakistan has been trying to reach an agreement with the International Monetary Fund for more than a month, while it has yet to pass amendments that reduce the government’s influence on the central bank and raise taxes before final approval by the International Monetary Fund.

The International Monetary Fund will issue approximately $ 1 billion in loan payments, which will help bolster Pakistan’s foreign exchange reserves and strengthen the rupee, which has fallen more than 14% against the dollar in the past six months. Other global lenders such as the World Bank are also expected to release frozen funds since the International Monetary Fund suspended lending more than six months ago.

The resumption of the IMF bailout will help smooth implementation of Pakistan’s loan plans, including $ 3.5 billion in global bonds to meet funding needs, as the country has a current account deficit of more than 6% of GDP with imports exceeding exports.

As a result, the central bank has estimated that the deficit would slightly exceed its previous forecast of 2% -3% of GDP.

Pakistan’s economy expanded faster than expected as coronavirus infections declined, but risks, including inflation, have also emerged that have prompted the central bank to impose more measures in recent months to slow domestic demand.

The International Monetary Fund expects economic growth to reach or exceed 4% in the fiscal year in course, compared to the government’s estimate of close to 5%.

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