Pakistan met targets set by the International Monetary Fund for the next payout under a $3 billion bailout package, boosting confidence in the economy months before the nation holds elections.
The IMF said Wednesday it reached a staff-level agreement with the government after reviewing its economic progress, giving Pakistan access to about $700 million in funding. The pact is subject to approval from the IMF’s executive board, it said.
The loans are critical to help Pakistan avoid defaulting on its debt after foreign-exchange reserves dwindled and the currency plunged. The government has been trying to fix imbalances in the economy, including raising gas prices and cracking down on the illegal dollar trade.
The IMF’s nod bolsters Pakistan’s credibility and gives a “sense of security” to other lenders that the nation can repay its loans, Amreen Soorani, head of research at JS Global Capital Ltd., said by phone from Karachi.
“Given that Pakistan is a net importer, runs a current-account deficit and needs to balance its external payments, these kinds of steps are necessary for fresh lending,” she said.
The IMF agreement also gives a boost to Pakistan’s caretaker government under Prime Minister Anwaar-ul-Haq Kakar. He’s trying to secure $6.3 billion in loans from the World Bank, Asian Development Bank and Islamic Development Bank, and about $10 billion in bilateral funding from creditor nations.
IMF Managing Director Kristalina Georgieva on Wednesday praised Pakistan’s efforts in sticking with the IMF program. However, the IMF said in its statement that while a nascent recovery is underway, the nation remains susceptible to significant external risks.
Under the IMF program, Pakistan is required to boost tax revenue, keep its budget under control and rebuild reserves. The next IMF review will be in February, the same month that Pakistan is due to hold elections.
Former Prime Minister Nawaz Sharif’s party is widely seen as a likely winner of the elections. His main rival, Imran Khan, remains in jail while he faces corruption charges.
Georgieva told Bloomberg TV on Wednesday that Pakistan’s authorities, especially the finance minister “deserve credit for a very difficult time sticking to the program that they have.”
The IMF program has stoked optimism among investors over Pakistan’s fiscal recovery, spurring a more than 50% 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 rupee rose 0.5% to 286.74 per dollar on Thursday, while stocks gained 0.5%. Dollar bonds due April 2031 were steady at about 48 cents on the dollar.
Pakistan is aiming to stabilize its current-account deficit at $6.5 billion, or 1.5% of gross domestic product, in the fiscal year ending in June. While the rupee has rebounded from a record low reached in early September, inflation remains elevated.
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.
--With assistance from Ezra Fieser and Khalid Qayum.
(Updates with additional details.)
