In a major relief to Pakistan’s struggling economy, the International Monetary Fund (IMF) has reportedly agreed, in principle, to extend the stalled bailout program by up to one year and increase the loan size to $8 billion. Signed in July 2019, the program was earlier expected to end by October 2022.

The development came after Pakistan’s Finance Minister Miftah Ismail held talks with the IMF officials in Washington, where the two sides agreed to extend the program by another nine months to one year as against the original end-period of September 2022, Express Tribune reported citing sources. 

Approved in 2019 by the IMF Board, the $6-billion bailout package saw the disbursement of half of the original amount as Islamabad failed to undertake necessary reforms to improve its fiscal condition. The addition of $2 billion in the bailout package will now allow Pakistan to access $5 billion subject to the implementation of reform measures.

Latest trade data released by the State Bank of Pakistan, the trade deficit till March (the first nine months) has reached $37 billion, pushing the current account deficit to $13 billion. This huge deficit comes deficit the country recording the highest ever inflow of remittances, around $23 billion in nine months. 

Of the $6 billion original bailout program, Pakistan managed to get only $3 billion as the previous government failed to fulfill its commitments for reforms. Furthermore, these reforms were further weakened when the outgoing government of former prime minister Imran Khan drastically reduced the prices of electricity and fuel.

The country’s months-long political instability also affected the government’s ability to focus on reforms. Although improving the economy remains the top agenda of newly elected Prime Minister Shehbaz Sharif, the road ahead is anything but easy.

In the last few days, the Sharif government has taken a series of measures indicating his administration’s willingness to get the IMF program running as soon as possible. Finance Minister Ismail has recently said that they will withdraw huge subsidies on electricity and fuel as they are unsustainable.

(SAM)