Over the past twelve months, the economic situation in Pakistan has deteriorated dramatically. The government has been facing a balance-of-payments crisis and, as a result, has had to take extensive measures to try to contain the drop in its foreign exchange reserves and fulfil the IMF’s requirements in order to receive the funds needed to avoid defaulting on its external debt.Restrictions on imports, the sharp rise in policy rates, the depreciation of the rupee and the dramatic cut in budget spending have significantly hindered economic growth and triggered a very sharp rise in inflationary pressures. Since February 2023, the external position has improved very slightly. However, it is still very fragile and the default risk remains very high.
The IMF and the Government of Pakistan have reached an agreement to complete the combined 7th and 8th reviews of Pakistan’s Extended Fund Facility which has been interrupted since March. If the IMF Executive Board approves the deal in the coming weeks, Pakistan will receive the equivalent of almost USD 1.2 billion. An extension of the support programme from September 2022 to June 2023 could allow the country to receive an additional SDR 720 million (i.e. approximately USD 947 million). Although this agreement will partially and temporarily ease pressure on the country’s external accounts, the risk of a balance-of-payments crisis remains high. The high pressures on the Pakistani rupee have not eased
