WASHINGTON: The International Monetary Fund said on Tuesday that its staff and Pakistani authorities had reached a staff-level agreement, which will grant the country access to approximately $1 billion under an extended fund facility arrangement once approved.

“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.

The new 28-month deal would support Pakistan’s efforts to mitigate and adapt to climate change, the Fund said in the statement announcing its decision.

Both the new programme and the loan review require approval from the Fund’s executive board, which is largely a rubber-stamping exercise.

Pakistan’s inflation is expected to remain steady in March, in the 1% to 1.5% range, according to the country’s finance ministry in its monthly economic outlook. This follows a slowdown to its lowest level in almost a decade the previous month.

“Upon approval (by the IMF board), Pakistan will have access to approximately $1 billion under the EFF, bringing total disbursements under the programme to around $2 billion,” the IMF stated.

The country’s finance minister expressed optimism with results of policies that the government has executed in line with the lender. “We remain committed to stay the course and continue to execute structural reforms with respect to taxation, energy and SOEs to put our country on the trajectory of sustainable productivity and export led-growth,” said Muhammad Aurangzeb, the finance minister, while talking to Geo News from China. 

Inflation in the South Asian country has been falling for several months, dropping to 1.5% in February, after soaring to around 40% in May 2023.

Pakistan maintains that its $350 billion economy has stabilised under a $7 billion IMF bailout, which helped avert a default.

“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.

Islamabad had been awaiting the IMF’s agreement on the first review of the bailout and the disbursement of $1 billion ahead of the country’s 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 warned that such risks could undermine Pakistan’s “hard-won macroeconomic stability.”

The IMF statement issued earlier today also said the Pakistani authorities remained “committed to advancing a gradual fiscal consolidation to sustainably reduce public debt,” along with tight monetary policy, cost-cutting measures and reforms, as they agreed in principle to the second review of the existing 37-month programme.

“Additionally, climate-related risks continue to pose a significant challenge for Pakistan, creating a need to build resilience including through adaptation measures,” IMF mission chief Nathan Porter said in the statement.

“In this regard, it is critical to stay the course and entrench the progress achieved over the past one and a half years, building resilience by further strengthening public finances, ensuring price stability, rebuilding external buffers and eliminating distortions in support of stronger, inclusive and sustained private sector-led growth.”