Govt, IMF reach staff-level deal to unlock $1.3bn in new climate resilience funding

The federal government has reached a deal with the International Monetary Fund (IMF) for a new $1.3 billion arrangement and also agreed on the first review of the ongoing 37-month bailout programme, the Fund said on Tuesday.

Pending board approval, the government can unlock the $1.3bn under a new climate resilience loan programme spanning 28 months.

It will also free $1bn for the country under the $7bn bailout programme, which would bring those disbursements to $2bn.

Pakistan had requested $1bn from the IMF’s Resilience and Sustainability Trust (RSF) in October. The funding under RSF is made available to nations who commit to high-quality reforms to build resilience against climate catastrophes through adaptation. It is repayable over 30 years, including a 10-year grace, and is normally cheaper than terms for an Extended Fund Facility (EFF), such as the $7bn loan programme with Pakistan which is underway.

The programme, secured mid-year in 2024, has played a key role in stabilising the economy and the government has said the country is on course for a long-term recovery.

“Over the past 18 months, Pakistan has made significant progress in restoring macroeconomic stability and rebuilding confidence despite a challenging global environment,” the IMF said in a statement.

“Upon approval (by the IMF board), Pakistan will have access to about $1bn under the EFF, bringing total disbursements under the programme to about $2bn,” the IMF said.

Inflation is likely to remain steady in March, in the 1-1.5 per cent range, the finance ministry said in its monthly economic outlook, after slowing to its lowest level in almost a decade the previous month.

Inflation has been declining for several months, hitting 1.5pc in February, after it soared to around 40pc in May 2023.

The government says the $350bn economy has stabilised under the $7bn IMF bailout that had helped it stave off a default threat.

“While economic growth remains moderate, inflation has declined to its lowest level since 2015, financial conditions have improved, sovereign spreads have narrowed significantly, and external balances are stronger,” the IMF said about Pakistan.

The government had been awaiting the IMF agreement on the first review of the bailout and disbursement of $1bn ahead of the annual budget, usually presented in June.

The IMF statement also noted what it called elevated downside risks such as geopolitical shocks to commodity prices, tightening global financial conditions or rising protectionism.

It said such risks could undermine Pakistan’s “hard-won macroeconomic stability”.

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