On Friday, Pakistani Prime Minister Shehbaz Sharif spoke to security officials in Islamabad and said that the country has to accept the strict conditions of a deal with the International Monetary Fund (IMF) in order to provide a lifeline for its economy in turmoil. The deal is still a week or 10 days away, and the IMF has been negotiating with Islamabad since February over policy framework issues. Once the agreement is signed, the IMF will disburse an over $1 billion tranche from the $6.5 billion bailout agreed in 2019.
To generate revenue to bridge the fiscal deficit, Pakistan has taken a string of measures, such as adopting a market-based exchange rate, hiking fuel and power tariffs, withdrawing subsidies, and more taxation. The IMF is still negotiating with Islamabad over power sector debt, as well as a potential rise in the policy rate, which stands at 17%. The strict measures are likely to further cool the economy and stoke inflation. Currently, the country\’s foreign exchange reserves are at a low $3 billion, barely enough for three weeks\’ worth of imports.
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