Pakistan is making progress towards securing a loan from the International Monetary Fund (IMF) with a $1 billion financing pledge from the United Arab Emirates (UAE) expected this week. Sources suggest that the UAE will provide written confirmation of the financing to the IMF through the Finance Secretary during the current annual meeting in Washington.
To secure external financing for this fiscal year, the IMF has asked Pakistan to seek assurances from friendly countries and multilateral partners for funding its balance of payment gap. In addition to Saudi Arabia’s $2 billion pledge, the agreement with the IMF is also contingent on the UAE’s $1 billion commitment.
According to sources within the Ministry of Finance, the UAE has finalised the agreement, and as soon as Pakistan receives a written guarantee from the Gulf state, the IMF will also be informed. This development follows requests from Pakistan’s Prime Minister and Finance Minister to UAE officials to complete the necessary prerequisites for the Fund.
Pakistan is currently facing one of the most severe economic crises in its history, with consumer prices at a record high and interest rates raised to an all-time high. Due to a dollar shortage, the IMF has revised its growth forecast for Pakistan to 0.5% from the earlier estimate of 2%, causing supply chain disruptions and companies to halt production.
The IMF is also assessing the coalition government’s proposed fuel discount for lower-income groups, which is planned to be financed by raising fuel prices for wealthier motorists. The finance minister has assured that the IMF has received all the required information.
The finance minister had cancelled his scheduled in-person meetings with IMF officials in Washington but has repeatedly claimed that the staff-level agreement with the lender would be reached soon. Islamabad has been hosting an IMF mission since January to negotiate policy measures and secure $1.1 billion in funding for the cash-strapped economy, which is on the verge of collapse.
The funds are part of a $6.5 billion bailout package approved by the IMF in 2019, which analysts argue is crucial for Pakistan to avoid defaulting on external payment obligations. The deal will also unlock other financing options to shore up Pakistan’s foreign exchange reserves, which have fallen to four weeks’ worth of import cover and help resolve the balance of payment crisis.