Pakistan secures final IMF approval for $3bn bailout

Pakistan won final approval to borrow $3 billion from the International Monetary Fund, unlocking long-awaited lending that will help ease the nation’s dire need for cash and rescue its economy. Dollar bonds rallied.

The IMF executive board on Wednesday approved a nine-month stand-by arrangement to support the country’s economic stabilisation program, the Washington-based institution said in a statement. The move allows for an immediate disbursement of about $1.2 billion.

After months of delays, the South Asian country made an all-out effort to win an IMF deal to avert a sovereign default, steps that included raising interest rates in an emergency meeting and increasing taxes. The IMF loan is boosting sentiment with the nation securing a credit score upgrade from Fitch Ratings and billions of dollars of additional financing from creditor nations.

“The IMF loan has lifted much of the near-term fog for Pakistan’s bonds, though price gains may now be more limited after the recent rally,” said Patrick Curran, a senior economist at Tellimer based in Portland, Maine.

“We will be keenly monitoring program implementation ahead of elections and progress towards a timely successor arrangement post-election, which is necessary to avoid a default in the longer-term,” he added.

Dollar bonds due 2031 were indicated slightly higher at 48.3 cents on the dollar on Thursday after surging 2.1 cents on Wednesday. Pakistan’s bonds handed investors a 35% gain in the past month, while stocks surged 10%.

Pakistan must implement policies such as “greater fiscal discipline, a market-determined exchange rate to absorb external pressures” and other reforms on energy and business policies in order to make the loan program successful, the IMF said.

Debt wall

Pakistan is one of the biggest customers of the IMF with about two dozen bailouts since the 1950s. The country has an uneven track record in meeting IMF targets, with a $1.1 billion loan in August halted due to Islamabad’s failure to meet some conditions.

The country now has $25 billion of debt repayments due in the fiscal year starting this month, according to Moody’s Investors Service. That’s more than five times its foreign-exchange reserves, which stood at $4.5 billion at the end of June.

Prime Minister Shehbaz Sharif sealed the bailout program after holding hour-long phone calls and several meetings with IMF Managing Director Kristalina Georgieva. The approval “bolsters Pakistan’s economic position to overcome immediate- to medium-term economic challenges,” Sharif said in a Twitter post.

Pakistan received a $2 billion deposit from Saudi Arabia and $1 billion from the United Arab Emirates this week. Improving finances will help the country’s transition to a newly elected administration later this year.

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