In a significant diplomatic development, the IMF Executive Board on Friday approved two loan packages totaling $2.3 billion for Pakistan, despite an attempt by India to block the approval. The global lender greenlit a $1 billion second tranche under Pakistan’s Extended Fund Facility (EFF) and sanctioned a new $1.3 billion Resilience and Sustainability Facility (RSF).
Despite India’s unsuccessful attempt to intervene, Pakistan’s economic team, led by Secretary Finance Imdad Ullah Bosal and Finance Minister Muhammad Aurangzeb, worked diligently to keep the program on track. Deputy Prime Minister Ishaq Dar leveraged his political relationships to fulfill key conditions, including the introduction of Agriculture Income Tax laws in Sindh and Balochistan.
With the IMF’s approval, Pakistan will immediately receive the $1 billion second loan tranche under the EFF, while the $1.3 billion RSF will be disbursed over the next 28 months. As a result, total disbursements under the EFF will now reach $2.1 billion. The IMF’s approval comes despite India’s unwise attempt to block the approval, even though India holds only 2.7% of the voting rights. This represents India’s second diplomatic setback in under 72 hours, following its loss of five fighter jets to the superior Pakistan Air Force.
The loan agreements were finalized after both Pakistan and the IMF made adjustments to the 25th Extended Fund Facility, including lowering the tax target in absolute terms, establishing a new deadline to trim Pakistan’s Sovereign Wealth Fund, and opening the economy to foreign companies. Additionally, Pakistan will introduce a carbon levy in July as part of the new $1.3 billion RSF, and water usage charges will be increased starting next year. Islamabad has also agreed to study the phase-out of existing Special Economic Zones (SEZs) by 2035.
Two months ago, an IMF team reached a staff-level agreement with Pakistan on the first review of the 37-month Extended Arrangement under the EFF and the new 28-month RSF, providing total access to around $1.3 billion over the next two years. As part of the conditions, Pakistan is committed to fiscal consolidation, reducing public debt, and creating space for social and development spending, while refraining from increasing current spending beyond the approved budget.
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