Months-Long Default Rumors Laid to Rest as Pakistan Locks IMF Deal

The International Monetary Fund (IMF) earlier today announced a staff-level agreement (SLA) with Pakistan, which experts believe will prevent a likely default and bring stability to the country’s economy.

In an interview with a local news channel, Michael Kugleman, Director of the South Asia Institute at the Wilson Center, stated that the deal would avert default, unlock additional funding from key creditors, and improve investor confidence to some extent. The agreement pertains to a $3 billion “stand-by arrangement (SBA)” with the IMF.

Islamabad waited until the very final hour to take the (politically risky) fiscal policy steps that the IMF had been hoping to see for months. If it had taken those steps earlier, much of the drama and fraught negotiations of recent months likely wouldn’t have had to play out.

— Michael Kugelman (@MichaelKugelman) June 30, 2023

Nathan Porter, the IMF’s Mission Chief to Pakistan, also confirmed the agreement, stating that the IMF team had reached a staff-level agreement with the Pakistani authorities on a nine-month SBA worth $3 billion.

Kugleman acknowledged that the agreement would restore short-term stability but noted that the country still faces deep-rooted structural flaws, making a complete recovery challenging.

Addressing Finance Minister Ishaq Dar’s claim that geopolitical factors delayed the agreement, Kugleman stated that the deal disproves this notion.

He highlighted that once Islamabad took the necessary fiscal policy steps to meet IMF conditions, negotiations swiftly progressed and resulted in an agreement.

In a final attempt to secure the stalled rescue package, the government introduced budget changes for the upcoming fiscal year, including a key interest rate hike to 22%.

The IMF deal, which comes after an eight-month delay, offers some relief to Pakistan, which has been grappling with a severe balance of payments crisis and declining foreign exchange reserves.

The $3 billion funding, spread over nine months, exceeds Pakistan’s expectations. The country had been awaiting the release of the remaining $2.5 billion from a $6.5 billion bailout package agreed in 2019, which expires on the day of the announcement.

CEO Topline Securities, Mohammad Sohail, said foreign investors have reacted in a positive manner after the announcement of Pakistan-IMF deal. Pakistan Eurobond surged by more than 10% in UK OTC market in morning trade. Short duration bonds are also performing well. Pak 2024 is now near 71 cents, while Pak 2025 is around 55 cents. These prices are up 70-80% since Oct 2022.

Foreign investors' positive reaction on Pakistan IMF deal. Pakistan Eurobond up 10% plus in UK OTC market in morning trade. Short duration bonds rallying. Pak 2024 is now near 71 cents, while Pak 2025 is around 55 cents. These prices are up 70-80% since Oct 2022#imfpakistan #IMF…

— Mohammed Sohail (@sohailkarachi) June 30, 2023