The International Monetary Fund’s (IMF) executive board approved a $3 billion bailout programme for Pakistan on Wednesday, the lender said, which will immediately disburse about $1.2 billion to help the country.

On June 29, the IMF and Pakistan reached a Standby Arrangement to ease the country’s financial crisis.

“The Executive Board of the International Monetary Fund approved a 9-month Stand-By Arrangement (SBA) for Pakistan for an amount of SDR2,250 million (about $3 billion, or 111 per cent of quota) to support the authorities economic stabilisation programme,” the global lender said in a statement.

It said the arrangement comes at a challenging economic juncture for Pakistan. “A difficult external environment, devastating floods and policy missteps have led to large fiscal and external deficits, rising inflation and eroded reserve buffers in FY23.”

The press release stated that the new programme would provide a policy anchor to Pakistan for addressing “domestic and external imbalances” and a framework for financial support from multilateral and bilateral partners.

“The programme will focus on (1) implementation of the FY24 budget to facilitate Pakistan’s needed fiscal adjustment and ensure debt sustainability while protecting critical social spending; (2) a return to a market-determined exchange rate and proper FX market functioning to absorb external shocks and eliminate FX shortages; (3) an appropriately tight monetary policy aimed at disinflation; and (4) further progress on structural reforms, particularly with regard to energy sector viability, SOE governance, and climate resilience,” the IMF added.

Moreover, it said the executive board approval allowed for an immediate disbursement of $1.2bn, with the rest to be phased over the programme’s duration — subject to two quarterly reviews.

IMF’s approval comes after Saudi Arabia and the United Arab Emirates (UAE) deposited $2 billion and $1 billion, respectively, with the State Bank of Pakistan, boosting the foreign exchange reserves.

The $3bn funding, spread over nine months, is higher than expected for Pakistan. Earlier, the country was awaiting the release of the remaining $2.5bn from a $6.5bn bailout package agreed in 2019, which expired in June.

Commenting on the development, Prime Minister Shehbaz Sharif said the approval of the $3bn agreement was a “major step forward” in the government’s efforts to stabilise the economy and achieve macroeconomic stability.

“It bolsters Pakistan’s economic position to overcome immediate- to medium-term economic challenges, giving the next government the fiscal space to chart the way forward,” he stated.

The premier said the “milestone”, which he claimed was achieved “against the heaviest of odds” and against a “seemingly impossible deadline”, could not have been possible without “excellent team effort”.

“I would commend Finance Minister Ishaq Dar and his team at the Ministry of Finance for their hard work,” PM Shehbaz said. He also thanked the IMF managing director and her team for their support and cooperation.

Meanwhile, Dar expressed gratitude and said that “things are now moving in the right direction” for which the government had been striving for the past several months.

“There were tough negotiations,” he stated in an interview on Geo News programme ‘Aaj Shahzeb Khanzada Key Saath’.

“Our 2019-2022 programme, which was extended for a year […] we were expecting $1.19bn in the 9th review and the rest was supposed to lapse,” he said.

Dar recalled that most of the government’s energies were spent on reaching the standby arrangement with the lender. “Thankfully, our efforts were successful and for this, we had to impose taxes.”

“I have tried that by the end of the [government’s] tenure — preferably by the end of July — the national reserves are between $14bn and $15bn,” the finance minister said, asserting that Pakistan was headed in a favourable direction now.

“All these reforms that we have brought are in the interest of Pakistan and they should remain intact. It will also be our utmost priority to ensure that this becomes the second programme that is completed by Pakistan,” Dar added.