The International Monetary Fund (IMF) has reached a staff-level pact with Pakistan, which was on the brink of default, on a $3 billion stand-by arrangement, Reuters reported. The deal, subject to approval by the IMF board in July, comes after an eight-month delay and offers some respite to Pakistan, which is battling an acute balance of payments crisis and falling foreign exchange reserves.


According to the report, Pakistan Finance Minister Ishaq Dar tweeted, "Praise be to God," after the deal was announced early on Friday. Pakistan will receive formal documents on the deal later on Friday from the IMF, Dar told Reuters, which he said he would "sign, seal and return by tonight." Dar had said on Thursday the deal was expected any time soon.


Pakistan's sovereign dollar bonds were trading 4.7 cents higher after the announcement. The country's domestic stock and currency markets were closed on Friday. With sky-high inflation and foreign exchange reserves barely enough to cover one month of controlled imports, analysts say Pakistan's economic crisis could have spiralled into a debt default in the absence of an IMF deal.


The $3 billion funding, spread over nine months, is higher than expected. The country was awaiting the release of the remaining $2.5 billion from a $6.5 billion bailout package agreed in 2019, which expired on Friday.


The new stand-by arrangement builds on the 2019 programme, IMF official Nathan Porter said on Thursday, adding that Pakistan's economy had faced several challenges in recent times, including devastating floods last year and commodity price hikes following the war in Ukraine.


"Despite the authorities' efforts to reduce imports and the trade deficit, reserves have declined to very low levels. Liquidity conditions in the power sector also remain acute," Porter said. "Given these challenges, the new arrangement would provide a policy anchor and a framework for financial support from multilateral and bilateral partners in the period ahead."


Reforms in the energy sector, which has accumulated nearly 3.6 trillion Pakistani rupees ($12.58 billion) in debt, has been a cornerstone of the discussions with the IMF. Islamabad has taken a slew of policy measures since an IMF team arrived in Pakistan earlier this year, including a revised 2023-24 budget last week to meet the lender's demands.


Other adjustments demanded by the IMF before clinching the deal included reversing subsidies in power and export sectors, hikes in energy and fuel prices, jacking up the key policy rate to 22 per, a market-based currency exchange rate and arranging for external financing. It also got Pakistan to raise over 385 billion rupee ($1.34 billion) in new taxation through a supplementary budget for the 2022-23 fiscal year and the revised budget for 2023-24.


The adjustments have already triggered all time high inflation of 38 per cent year-on-year in May in Pakistan. "The FY24 budget advances a primary surplus of around 0.4 per cent of GDP by taking some steps to broaden the tax base and increase tax collection from under-taxed sectors," Porter said, adding it also ensured space to strengthen support for the vulnerable through a cash handout programme.