International Monetary Fund,World Bank,AIIB, ADB and India

Pak gets a $3 bn IMF Package


From UPSC perspective, the following things are important :

Prelims level: IMF Bailout Packages

Mains level: Pakistan's prospected economic default and collapse

imf pakistan

Central Idea

IMF and its Bailout

  • The IMF is an international organization that provides loans, technical assistance, and policy advice to member countries.
  • Established in 1944 to promote international monetary cooperation, exchange rate stability, balanced economic growth, and poverty reduction.
  • Headquarters located in Washington, D.C., and it has 190 member countries.
  • An IMF bailout, also known as an IMF program, is a loan package provided to financially troubled countries.
  • Bailout programs have specific terms and conditions that borrowing countries must meet to access the funds.

Types of IMF Bailout Packages

Description Duration Conditionality
Stand-by Arrangements Short-term lending programs for countries with temporary balance of payments problems. 1-2 years Specific macroeconomic policies for stabilization
Extended Fund Facility Medium-term lending programs to address balance of payments difficulties from structural weaknesses. Longer-term Extensive conditionality and significant reforms
Rapid Financing Instrument Loan program providing quick financing for countries with urgent balance of payments needs. Flexible Fewer conditions and shorter application process


Quick recap: Pakistan Economic Crisis


  • The 2022-2023 economic crisis in Pakistan coincides with political unrest in the country.
  • Rising food, gas, and oil prices have aggravated the economic challenges faced by Pakistan.
  • The IMF’s decision to halt disbursement of funds under the 2019 Extended Fund Facility (EFF) program exacerbated the financial crisis.

Causes of the Economic Crisis

  • Impact of the Russian invasion of Ukraine: Worldwide fuel price hike affecting Pakistan’s import-dependent economy.
  • Excessive external borrowings: Raised concerns of default, leading to currency depreciation and expensive imports.
  • High inflation and food prices: By June 2022, inflation reached record levels, adding pressure on the economy.
  • Poor governance and low productivity: Contributing factors to the balance of payment crisis and insufficient foreign exchange earnings.

Impact on the Pakistani Economy

  • Balance of payment crisis: Inability to generate enough foreign exchange to cover import expenses.
  • Currency depreciation: Weakening of the Pakistani rupee against major currencies, further exacerbating import costs.
  • Rising inflation: Placing a burden on the population, particularly with escalating food prices.
  • Economic instability: The crisis is considered the most significant since Pakistan’s independence.

What’s’ the new SBA Deal?

  • Electricity subsidies: The agreement calls for the discontinuation of historically heavy subsidies in the power sector. There will be a timely rebasing of power tariffs to ensure cost recovery, which may lead to inevitable price hikes for consumers.
  • Import restrictions and exchange rate: Pakistan’s central bank will be required to remove import restrictions and adopt a fully market-determined exchange rate, aligning with the IMF’s directive.
  • Inflation control measures: The IMF emphasizes the need for the central bank to be proactive in curbing inflation, especially its impact on vulnerable segments of society. This may involve further interest rate hikes.
  • Fiscal discipline: The Pakistani authorities are urged to resist pressures for unbudgeted spending or tax exemptions, ensuring responsible fiscal management.

Obligations laid on Pakistan

  • The $3 billion IMF support is part of the overall financial aid required to address Pakistan’s external payment obligations.
  • Pakistan will continue to seek additional multilateral and bilateral assistance to meet its financial commitments.
  • Support from countries such as the UAE, Saudi Arabia, and China is expected, further contributing to Pakistan’s financial stability.

Reaction to the Deal

  • The response from analysts and economists has been mixed, with some expressing optimism that the agreement will restore investor confidence in Pakistan’s economy.
  • However, there are concerns regarding the government’s ability to adhere to the rigorous conditions imposed by the IMF.


  • The IMF deal provides a temporary respite and financial support to address Pakistan’s economic challenges.
  • However, the successful implementation of the agreement and the long-term stability of Pakistan’s economy will require sustained efforts, adherence to conditions, and comprehensive structural reforms.

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