The government of Pakistan and the International Monetary Fund (IMF) reached an agreement over the weekend for Pakistan to receive $1.2 billion in loans, pending approval from the IMF Board.
The Extended Fund Facility (EFF) will provide $1 billion, and the remaining $210 million will be provided by the Resilience and Sustainability Facility (RSF). These funds are part of a broader $7 billion IMF program, which requires Pakistan to be particularly careful and data-driven in its monetary policy to mitigate inflation.
This $1.2 billion brings the total disbursements of this program to $4.5 billion so far. In March, Pakistan’s central bank kept its benchmark rate steady at 10.5 percent. Like other economies around the world, Pakistan is dealing with rising global energy prices amid the U.S. and Israeli conflict with Iran.
The IMF’s mission chief, Iva Petrova, acknowledged in a statement that the war in Iran is an ongoing challenge that has been, and will continue to be, factored into this agreement. “The conflict in the Middle East, however, casts a cloud over the outlook as volatile energy prices and tighter global financial conditions risk putting upward pressure on inflation and weighing on growth and the current account,” Petrova stated.
Petrova continued, “Exchange rate flexibility should continue to serve as the primary shock absorber, including against spillovers from the conflict in the Middle East.”
