Pakistan secures $7 billion fresh loan from IMF; says it will have to go through ‘transitional pain’: Report

Pakistan has secured new relief package of $7 billion from the International Monetary Fund (IMF) to bolster its faltering economy. The neighbouring country said it will have to go through “transitional pain” to carry out structural reforms as part of the loan agreement, which will be disbursed over 37 months. 

Despite an apparent stability in Pakistan’s economy, it is dependent on IMF bailouts and loans from friendly countries to service its huge debt, which swallows up half of its annual revenues. 

“There will be transitional pain, but if we are to make it the last programme, then we have to carry out structural reforms,” Finance Minister Muhammad Aurangzeb told local broadcaster Geo News. 

IMF said that it would issue an “immediate disbursement” of around $1 billion. 

“This past year has seen a very welcome return to economic stability in Pakistan. The challenge confronting Pakistan now is to move beyond this renewed sense of stability and towards stronger and sustained growth, with its benefits shared more broadly and evenly across society,” IMF Pakistan mission chief Nathan Porter said as quoted by AFP. 

Pakistan has received “significant financing assurances” from China, Saudi Arabia and the United Arab Emirates (UAE) linked to a new IMF programme that go beyond a deal to roll over $12 billion in bilateral loans owed to them by Islamabad, Reuters reported. 

IMF Pakistan Mission Chief Nathan Porter declined to provide details of additional financing amounts committed by the three countries but said they would come on top of the debt rollover, it added. 

Pakistan in July agreed to the deal -- its 24th IMF payout since 1958 -- in exchange for unpopular reforms, including cutting back on power subsidies and widening its chronically low tax base. 

Speaking on the sidelines of the United Nations General Assembly in New York, Pakistan Prime Minister Shehbaz Sharif said the deal came through thanks to the “tremendous support” of Saudi Arabia, China and the United Arab Emirates (UAE). 

“In the final phase (of negotiations), the IMF's conditions were related to China. The way the Chinese government supported and strengthened us during this time is something I am truly grateful for,” he said as quoted by AFP. 

Last month, he had said Pakistan was negotiating a $12 billion loan reprofiling from bilateral lenders. The amount comprised $5 billion from Saudi Arabia, $4 billion from China and $3 billion from the UAE for a three- to five-year period. 

At the end of 2023, Pakistan had amassed a total debt of more than $250 billion, or 74 percent of GDP, according to the IMF. About 40 percent of its debt is owed to external creditors in foreign currencies.  

Its biggest single foreign creditor is China and Chinese commercial banks, at just under $30 billion, followed by the World Bank at more than $20 billion, according to the report. 

Last year, the country came to the brink of default as the economy spluttered amid political chaos following 2022 monsoon floods and decades of mismanagement, as well as a global economic downturn. It was saved by last-minute loans from friendly countries as well as an IMF rescue package. 

The IMF said Pakistan “has taken key steps to restoring economic stability with consistent reforms”. But “despite this progress, Pakistan’s vulnerabilities and structural challenges remain formidable”, it warned. 

“A difficult business environment, weak governance, and an outsized role of the state hinder investment, which remains very low compared to peers,” it added.