The executive board of the International Monetary Fund approved almost $1.2 billion for Pakistan Monday, providing much-needed relief as the country grapples with an economic crisis worsened by massive floods.
"Pakistan's economy has been buffeted by adverse external conditions, due to spillovers from the war in Ukraine, and domestic challenges," Antoinette Sayeh, IMF deputy managing director and acting chair said in a statement.
Criticizing government policies that caused “uneven and unbalanced growth,” Sayeh stressed Pakistan must implement “corrective policies and reforms” to regain economic stability, and inclusive and sustainable growth.
The loan approval comes as Pakistan's foreign exchange reserves stand at a mere $13.5 billion, as of August 19 according to the State Bank of Pakistan. Weekly inflation touched 45% in August, according to government data, with prices of food and fuel skyrocketing.
Announcing the board's decision on Twitter, Miftah Ismail, Pakistan's finance minister, congratulated the nation and thanked prime minister Shahbaz Sharif, "for taking so many tough decisions and saving Pakistan from default." The $1.17 billion is part of a $6 billion loan program agreed upon in 2019.
However, the funding may not be enough to pull Pakistan out of its deep economic crisis, as the country is dealing with some of the worst floods in over a decade. Since June, according to disaster managements agencies, countrywide rains and flooding have killed over 1,136 people, "badly affected" more than 33 million others and devastated crops.
The extent of the monsoon disaster, estimated to have caused around $5 billion in damage, prompted the government to declare a national emergency and appeal to the international community for aid last week.
The IMF statement did not make any mention of the economic fallout of the floods. It welcomed Pakistan's plan to achieve a small budget surplus, calling it critical to contain spending and generate more tax revenues.
The loan approval from the IMF's executive board comes after tough negotiations between the Fund's staff and Pakistani officials. Before staff-level approval in July, the global lender had demanded Pakistan raise electricity and fuel rates, do away with many subsidies, let the open market determine the value of its currency which sent the rupee into a tailspin, and fill a budgetary shortfall of nearly $4 billion.
Drama at home
While Pakistan took austerity measures and managed to secure billions in financial commitments from friendly countries like China, Saudi Arabia, UAE and Qatar, last-minute developments at home created concerns about Pakistan's ability to unlock the IMF's aid.
Under the IMF deal, all four provinces of Pakistan agreed to show a budget surplus this year. However, in a letter to finance minister Ismail, the finance minister of Khyber Pakhtunkhwa (KP), a province run by ousted prime minister Imran Khan's PTI party, refused to meet the condition, citing flood damages and other outstanding financial issues with the federal government. Ismail called it a "conspiracy against Pakistan."
On Monday, two audio clips began circulating in the media in which Khan's former finance minister is allegedly heard asking the current finance ministers of Punjab and KP, both provinces run by PTI, to decline to show budget surplus in a bid to pressure Sharif's government.
While the authenticity of the leaked audio clips is yet to be established, PTI leadership defended the conversations in a news conference Monday, calling it "advice." In a separate news conference, finance minister Ismail criticized the PTI, saying "after God, [the] IMF program is the one support" for Pakistan that is drowned in floodwaters.
The IMF granted Pakistan's waivers for nonobservance of some performance criteria. In a tweet Ismail thanked China, Saudi Arabia, Qatar and UAE for helping bridge funding gaps to revive the IMF program. He also thanked the U.S., Turkey, EU and others for their support.