Pakistan and the International Monetary Fund (IMF) have finally reached a bailout deal worth $3 billion, providing much-needed respite for the country on the verge of economic collapse. The agreement, subject to approval by the IMF’s executive board in mid-July, follows Pakistan’s efforts to meet the lender’s demands, including raising taxes, reducing government spending, and increasing interest rates to a record 22%.

The nuclear-armed nation, with a population of over 230 million, is currently grappling with one of the most severe economic crises in its history. Soaring inflation, a rapidly depreciating currency, and depleting foreign exchange reserves have hindered its ability to pay for essential imports like oil and gas. Moreover, the country has been inching towards default as it faces the repayment of billions of dollars in overseas debt.

The deal’s completion was delayed due to disagreements over terms and required reforms. Fortunately, an agreement was reached just hours before Pakistan’s existing $6.5 billion funding facility was set to expire. Out of the facility, Pakistan had received only about $3.9 billion.

To overcome the current challenges, the IMF emphasizes steadfast policy implementation, fiscal discipline, a market-determined exchange rate, and further progress in the energy sector. As part of the agreement, Pakistan must revamp its debt-ridden energy sector by reducing subsidies, increasing energy and fuel prices, and addressing issues in the power and export sectors.

The deal offers Pakistan some breathing room by unlocking financing from the IMF and key bilateral creditors. However, experts caution that the country must adhere to the agreed conditions for a minimum of nine months to ensure macroeconomic stability. Failure to do so may jeopardize the bailout program and Pakistan’s ability to meet its payment obligations.

While the deal provides immediate relief, concerns remain about its long-term implications, especially with a general election scheduled later this year. It is essential for the Pakistani government to follow through on the IMF’s prescribed reforms and maintain political commitment to the program. Additionally, the country needs to transition from short-term relief to long-term economic recovery.

The agreement is a significant step forward for Pakistan, offering hope for stabilizing its economy and securing finances from international partners. However, only time will tell if Pakistan can sustain the necessary reforms and steer its economy towards a path of sustainable growth.

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