Pakistan and the International Monetary Fund (IMF) have reached an agreement on a new nine-month, $3 billion stand-by arrangement. This is good news for Pakistan, as they have been struggling to meet the IMF’s conditions and faced criticism for their debt obligations. The IMF Executive Board is expected to formally approve the arrangement in mid-July. This agreement is likely to have positive effects on the Pakistani stock market and dollar-denominated bonds. It may also lead to a ratings upgrade for Pakistan. The stand-by arrangement will help Pakistan access capital markets and boost their foreign exchange reserves. However, the government must continue to meet economic measures set by the IMF. The IMF will closely monitor Pakistan’s economy and scrutinize issues such as the petroleum development levy and liquidity in the power sector. The State Bank of Pakistan will need to handle monetary policy and the exchange rate carefully. Pakistan will also need to secure financial support from multilateral institutions and convert it into tangible inflows. Improving the energy sector and strengthening governance and investment management frameworks are also important focus areas. Overall, this agreement provides some relief for Pakistan and gives the government room to address economic challenges.
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