Pakistan and the International Monetary Fund (IMF) reached a staff-level deal on a loan worth around $3 billion, as the Asian country faces a sharp economic downturn and crippling foreign debt.

The country's economy has been exacerbated by skyrocketing inflation, political instability, the global energy crisis, earthquakes, and the devastating floods that submerged large portions of the country in 2022.

The country's balance of payments crisis is one of the largest problems striking Pakistan, and causing major instability in the local currency's rate.

Islamabad earlier opposed abiding by the IMF's strict requirements on raising taxes and slashing subsidies.

While the negotiations started in 2019 under the term of former Prime Minister Imran Khan, the IMF's requirements remained under heavy skepticism for enforcing terms and conditions "beyond imagination," as described by sitting Prime Minister Shehbaz Sharif said in February this year.

"I am pleased to announce that the IMF team has reached a staff-level agreement with the Pakistani authorities on a nine-month standby arrangement in the amount of SDR 2,250 million (about $3 billion)," IMF official Nathan Porter stated after the meeting in Washington.

The loan, which exceeds Pakistan's IMF quota by 11 percent, will still need to be approved net by the fund's executive board.
 
Islamabad's years-long talks with the financial body were halted in November 2022, just as the country was expected to receive the last payment of a $6.5 billion debt grant agreed upon in 2019.

Discussions between the two parties were disrupted after the IMF demanded economic reforms that the Asian country saw as almost impossible to execute over fears that they will further deteriorate the economy. 

The  agreement was reached just hours before the original package was set to expire on Friday.

Investor confidence

On his Twitter account, Pakistan's Finance Minister Ishaq Dar expressed relief after the announcement.

"AlhamdoLilah!," the minister tweeted, linking the IMF statement on the agreement.

AlhamdoLilah!https://t.co/Mv8N4bqZit

— Ishaq Dar (@MIshaqDar50) June 30, 2023

However, the head of the South Asia Institute at the Wilson Center commented on the news by criticizing Pakistan for stalling until the last few hours before introducing the fund's demanded reforms.
 
"Islamabad waited until the very final hour to take the (politically risky) fiscal policy steps that the IMF had been hoping to see for months," Michael Kugelman said on Twitter.

Islamabad waited until the very final hour to take the (politically risky) fiscal policy steps that the IMF had been hoping to see for months. If it had taken those steps earlier, much of the drama and fraught negotiations of recent months likely wouldn’t have had to play out.

— Michael Kugelman (@MichaelKugelman) June 30, 2023

The Director of Topline Securities, a fast-growing brokerage house in Pakistan, told AFP that the loan will bring back some investor confidence in the country's economy.

 "This new program is far better than our expectations. There were a lot of uncertainties on what will happen after June 2023 as there will be a new government coming to power," he said.