Photo credit : soontimes
By: Montel Kamau
Serrari Financial Analyst
13th July 2023
Karachi, Pakistan – Pakistan has successfully received the first tranche of $1.2 billion from the International Monetary Fund (IMF) as part of a $3 billion bailout package aimed at stabilizing its ailing economy. This significant development comes after the IMF’s board approved the package, providing much-needed support to a nation that had been teetering on the brink of a sovereign debt default.
Finance Minister Ishaq Dar announced that the State Bank of Pakistan has received the initial installment of the IMF funds. The arrival of this tranche follows Pakistan’s receipt of $1 billion from the United Arab Emirates and $2 billion from Saudi Arabia earlier this week. The financial support from these countries, along with the IMF bailout, has instilled confidence in the Pakistani economy and bolstered its sovereign bonds and currency.
The Pakistani rupee experienced a 1% rise to 274.5 per dollar in the interbank market, with early trade indicating a potential increase of up to 2%. Additionally, Pakistani sovereign dollar bonds saw gains, with a bond maturing in 2027 reaching a 10-month high of over 53 cents on the dollar, and a 2024 maturity trading just under 80 cents, its highest level in over a year.
The IMF has emphasized that the rescue program will focus on implementing a tight monetary policy to curb inflationary pressures. The fund projects that inflation will average 25.9% in fiscal year 2024, with a gradual moderation to around 16% towards the year-end. The government, on the other hand, has projected inflation at 21% for the same period.
Pakistan’s economy has been grappling with an acute balance of payments crisis, with foreign exchange reserves only sufficient to cover roughly a month of controlled imports. However, with the implementation of the IMF bailout, the country is projected to have an import cover of 1.4 months in fiscal year 2024.
The IMF stresses the importance of a market-determined exchange rate to absorb external shocks, reduce imbalances, and restore growth, competitiveness, and buffers. A continued tight, proactive, and data-driven monetary policy is deemed necessary for the nation’s economic stability and recovery.
The successful disbursement of the first tranche of the IMF bailout marks a crucial milestone for Pakistan’s economy, which has faced significant challenges and uncertainty in recent times. The financial support received from the IMF, along with assistance from the UAE and Saudi Arabia, will aid in stabilizing the economy and provide much-needed relief to the Pakistani people.
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