The International Monetary Fund agreed to revive a $6 billion bailout package for Pakistan, providing a major relief to its struggling economy.
Pakistan and IMF have reached a staff-level agreement for the loan review, the IMF said in a statement. The agreement involves the implementation of prior actions, notably on fiscal and institutional reforms, before an approval from the IMF’s executive board, it said.
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The agreement comes as the South Asian economy grapples with stubborn inflation, due in part to pent-up demand, high global commodity prices and rising imports. Pakistan’s central bank raised its key interest rate by more than expected last week.
The international lender will release about $1 billion in a loan installment that will help shore up Pakistan’s foreign exchange reserves and strengthen the rupee, which has weakened more than 14 percent against the dollar in the past six months.
Other global lenders such as the World Bank are also expected to release funds stuck since the IMF suspended the loan more than six months ago.
The resumption of the IMF bailout will help see Pakistan’s borrowing plans go through smoothly, including $3.5 billion in global bonds to meet funding needs.
Until recently, the country was seeing the deficit in its current-account — the broadest measure of trade — widening beyond 6 percent of gross domestic product as imports outpaced exports.
This has prompted the central bank to estimate that the deficit will “modestly exceed its earlier forecast of 2 percent-3 percent of gross domestic product.