The United Arab Emirates has confirmed a $1 billion financial assistance to Pakistan, the South Asian country’s finance minister announced on Friday, clearing a major impediment to obtaining a long-awaited bailout tranche from the International Monetary Fund (IMF).
The guarantee is one of the lender’s final prerequisites before accepting a staff-level agreement to release a $1.1 billion tranche, which has been delayed for months and is critical for Pakistan to manage an urgent balance of payments issue.
“The State Bank of Pakistan is now engaged for needful documentation for taking the said deposit from UAE authorities,” Finance Minister Ishaq Dar said on Twitter, referring to the central bank.
The external financing is needed to fully fund the balance of payments gap for the fiscal year that ends in June.
On Thursday, the IMF’s managing director, Kristalina Georgieva, said the fund was also in talks with nations friendly to Pakistan to secure financial assurances vital for the programme.
Last week Saudi Arabia also told the IMF it would provide financing of $2 billion to Pakistan.
Pakistan’s foreign exchange reserves have fallen to cover barely a month of imports after the IMF funding stalled in November, hit by snags over fiscal policy adjustments until officials of the lender visited Islamabad in February for talks.
They formed part of a ninth review exercise on a bailout package of $6.5 billion agreed in 2019 whose resumption is critical for Pakistan to avoid risking default on external payment obligations.
Pakistan had to complete actions demanded by the IMF, such as reversing subsidies in its power, export and farming sectors, hikes in the prices of energy and fuel, and a permanent power surcharge, among other measures.
These steps included jacking up its key policy rate to an all-time high of 21%, a market-based exchange rate, arranging for the external financing, and raising more than 170 billion rupees ($613 million) in new taxes.
The fiscal adjustments have already fuelled highest ever inflation, which climbed in March to more than 35% on the year.
The only issue left to be resolved is a fuel pricing scheme Pakistan has announced to give relief to its lower middle class and poor from crippling inflation.
Dar has said Pakistan has given details of the scheme to the IMF, which has asked how it would it find the resources needed.
The IMF program will disburse another tranche of $1.4 billion to Pakistan before it concludes in June.
Funds from the lender will also unlock other bilateral and multilateral financing for the cash-strapped country.