WASHINGTON: The IMF said Tuesday it has reached agreement with Pakistan on a new $1.3 billion loan program and reviewed an existing bailout that would, if approved, unlock an additional $1 billion. The new 28-month deal would support Pakistan’s efforts to mitigate and adapt to climate change, the International Monetary Fund said in a statement announcing its decision. Both the new program and the loan review require approval from the Fund’s executive board, which is largely a rubber-stamping exercise. Pakistan came to the brink of default in 2023, as a political crisis compounded an economic downturn and drove the nation’s debt burden to terminal levels.

It was saved by a $7 billion bailout from the IMF and has enjoyed a degree of recovery, with inflation easing and foreign exchange reserves increasing. But the deal - Pakistan’s 24th since 1958 - came with stern conditions that the country improve income tax revenue and cut popular power subsidies, cushioning costs of the inefficient sector. On Tuesday, the IMF said the Pakistani authorities remained “committed to advancing a gradual fiscal consolidation to sustainably reduce public debt,” along with tight monetary policy, cost-cutting measures and reforms, as they agreed in principle to the second review of the existing 37-month program.

Assuming the agreement is approved by the Fund’s executive board, the Pakistani authorities will get access to fresh funds worth around $1 billion. That would bring the total disbursements under the existing program to around $2 billion, the Fund said. “Over the past 18 months, Pakistan has made significant progress in restoring macroeconomic stability and rebuilding confidence despite a challenging global environment,” IMF mission chief Nathan Porter said in a statement.

Pakistan’s government said on Wednesday the country’s provisional GDP growth rate was 1.73 percent in the second quarter of the current financial year ending on June 30 and upgraded its estimate for the previous quarter. 

he government National Accounts Committee said in a statement that Pakistan had revised the first quarter real GDP estimate up to 1.34 percent from earlier estimates of 0.92 percent due to higher-than expected growth in the services sector.

The announcement came just hours after International Monetary Fund staff reached a deal with Pakistan for new $1.3 billion financing and praised the country’s progress on boosting macroeconomic stability. The country’s central bank in March said its full-year GDP growth target was at 2.5 percent to 3.5 percent and said it expected economic activity to gain further momentum. – Agencies