Pakistan secured initial approval from the International Monetary Fund for the release of the next loan tranche from a $3 billion bailout program.
The Washington-based lender announced on Wednesday that it reached a staff-level agreement to give the nation access to a payout of roughly $700 million — subject to approval from the IMF’s executive board.
IMF financing is critical for Pakistan to avoid defaulting on debt as the government steps up efforts to fix imbalances in the economy, including raising gas prices and cracking down on the illegal dollar trade. While a nascent recovery is underway, the nation remains susceptible to “significant external risks,” said an IMF team led by Nathan Porter.
IMF Managing Director Kristalina Georgieva on Wednesday had flagged an agreement would come within days, and also praised Pakistan’s efforts in achieving the goal.
The authorities, especially the finance minister “deserve credit for a very difficult time sticking to the program that they have,” she said in an interview on Bloomberg TV.
The IMF program has stoked optimism among investors over Pakistan’s fiscal recovery, spurring a more than 50 percent return in its dollar bonds this year. Its benchmark equity gauge, the KSE-100 Index, is one of the best performers globally since the IMF deal in July.
The announcement came after local markets closed Wednesday. Dollar bonds due April 2031 were steady at about 49 cents on the dollar in early Asian trading on Thursday.
There are still risks ahead. While the rupee has rebounded from a record low reached in early September, inflation remains elevated and the government is dependent on external financing from creditors, including countries in the Middle East.
Goldman Sachs Group Inc. warned in October the strength of Pakistan’s rupee will be short-lived, given financing risks and as the election approaches.