ISLAMABAD, Pakistan — The International Monetary Fund said it had reached a staff-level agreement with the Pakistani government to revive a bailout program that would provide a welcome reprieve to the country grappling with an economy plunged into a crater, depreciating currency. , high inflation and political instability.
If approved by the monetary fund board, the deal — announced by the fund late Wednesday in Eastern time — would pave the way for the $1.17 billion payout. It could also free up more funding for Pakistan, which has been on the brink of a balance of payments crisis in recent weeks.
“The announcement by the IMF will prove to be a much-needed shot in the arm for Pakistan’s ailing economy,” said Aqdas Afzal, an analyst in Karachi and assistant professor of economics at Habib University, who added that the surge in energy prices after the invasion of Ukraine and rising commodity prices in general had not helped.
Reviving the loan program and getting the economy back on track was a political litmus test for Pakistan’s new Prime Minister, Shehbaz Sharif, who took over in April after his predecessor, Imran Khan, passed a no-confidence vote. dropped off.
For months, Mr Sharif’s fund and government have been deadlocked in discussions over terms of reviving the bailout, which was announced in 2019 and later suspended after Pakistan’s previous government failed to meet some loan conditions such as reducing energy subsidies.
Like his predecessor, Mr Sharif had been reluctant to introduce some of the fund’s key demands, fearing public reactions that could hurt his party’s chances of success in the next general election.
Those elections are scheduled for next year, but the new government is under increasing public pressure from Mr Khan and his supporters to hold them earlier.
“The fund demanded progress towards improved public finances, which the new government was reluctant to implement right away, as introducing higher taxes could backfire politically,” said Mr. Afzal, the analyst.
But when foreign exchange reserves had fallen dangerously low in recent weeks, Mr Sharif’s government relented and implemented a series of harsh economic measures to meet the IMF’s demands. These measures, including raising electricity tariffs, raising fuel prices and ending government subsidies, have led to the expected backlash.
Fuel prices have risen significantly over the past two months, sparking loud public outcry and harsh criticism from the former Prime Minister, Mr Khan.
Feroz Ahmed, who owns a supermarket in Karachi, said higher prices for petrol and other essential goods had made life difficult for ordinary Pakistanis.
He said that in recent months the prices of virtually everything – flour, cooking oil and rice; electricity, gas and petrol — have soared, while salaries have remained the same or have been cut.
“People who used to buy a kilo of essential products, such as pulses and sugar, are now increasingly buying 125 or 250 grams because their purchasing power has been severely affected,” he said. “Many retailers have closed their businesses and leased their stores in recent months because inflation has hit merchants as well.”
Akram Shah, a rickshaw driver in Karachi, said the rise in fuel costs had affected his income.
“People can’t afford to take their own cars to work or use rickshaws or Uber and have started using public transportation,” said Mr. shah. “Now it is difficult for me to pay the rent of my house, the school fees for two children and to buy them food.”
Mr Sharif has defended the economic measures as a necessary hardship to steer the country’s faltering economy in the right direction.
“The agreement with the Fund has paved the way for the country to get out of economic difficulties,” said Mr Sharif. wrote on Twitter on Thursday.
The IMF also outlined a number of policy priorities for the Pakistani government. These include cutting government spending, increasing tax revenues and keeping inflation under control – which was over 20 percent in June compared to the same period a year earlier.
Analysts said reviving the loan program would boost international confidence in the country’s economic future.
“The IMF agreement will open additional sources of financing for Pakistan as it will be perceived by many bilateral donors and friendly countries as a signal that Pakistan’s economy has now stabilised,” said Mr Afzal. “With the help of the IMF and falling international oil prices, Pakistan appears to have averted a major economic crisis.”
Salman Masood message from Islamabad. Zia ur-Rehman contributed reporting from Karachi, Pakistan, and Christina Goldbaum from Dubai, United Arab Emirates.