$3 Billion Stand-By Arrangement (SBA) between Pakistan and IMF

July 4, 2023

The Pakistan government has reached a staff-level agreement with the International Monetary Fund (IMF) for a funding of $3 billion. The agreement is part of a nine-month stand-by arrangement (SBA) between the two parties. Pakistan was previously part of a $6.5 billion IMF bailout under the Extended Fund Facility (EFF), which expired at the end of June this year.

Understanding the Staff-Level Agreement

A staff-level agreement is a preliminary agreement between the IMF staff and the government of Pakistan. It serves as the basis for seeking approval from the IMF’s executive board. Nathan Porter, the IMF mission chief to Pakistan, announced the agreement, stating that it builds on the country’s previous efforts under the 2019 EFF-supported program. The agreement is subject to approval by the IMF’s executive board, which is expected to consider the request by mid-July.

Reasons for Pakistan’s Economic Crisis

Pakistan’s economy has been facing various challenges, including external shocks such as catastrophic floods in 2022 and a spike in international commodity prices due to Russia’s war in Ukraine. The nation’s inflation rate reached a reported record-high of 38 percent in May, according to the State Bank of Pakistan. Additionally, the devaluation of the Pakistani rupee, which fell to 285.99 against the US dollar on June 27, has added further pressure to the economy, particularly due to Pakistan’s heavy imports of crude oil and petroleum products.

Debt Burden and Financial Situation

According to a report by the United States Institute of Peace (USIP), Pakistan held an external debt burden of $126.3 billion in December 2022. The debt is primarily owed by the government of Pakistan to various creditors, including multilateral institutions such as the World Bank, the Asian Development Bank, and the IMF. The recent staff-level agreement with the IMF will contribute to strengthening Pakistan’s foreign exchange reserves and achieving economic stability.

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