The International Monetary Fund (IMF) Executive Board has approved a $7 billion loan for Pakistan under the Expanded Fund Facility (EFF), and immediately released nearly $1 billion to help Pakistan address its economic challenges and restore macroeconomic stability.

In a statement announcing the new loan program, which spans 37 months, the IMF noted that Pakistan's economic growth rate has reached a modest 2.4% in the last fiscal year, and inflation fallen significantly to single digits.

This improvement was largely driven by activities in the agricultural sector and the implementation of adequate fiscal and monetary policies, which helped keep the country’s current account deficit under control. This allowed the foreign exchange reserves to improve again, while the decline in inflation reflects an improvement in the internal and external conditions.

The IMF noted that the State Bank of Pakistan (SBP) has also cut its policy rate by 450 basis points since June, contributing to a recovery in foreign exchange reserves, adding that a strong budget was presented in June 2024.

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Despite these advancements, the IMF warned that Pakistan still faces several major challenges, including a difficult business environment, weak governance, excessive state intervention, and a limited tax base, which continue to hamper private investment. Additionally, the country’s narrow tax base makes it difficult to meet its fiscal sustainability goals as well as social and development expenditure.

The global lender stressed that the expenditure on health and education is insufficient for permanent relief from poverty. Moreover, inadequate investment in infrastructure has restricted economic potential, it added.

The IMF emphasized that reforming public institutions and improving public service delivery remain among the key objectives under the loan agreement. A focus on infrastructure development, combating the effects of climate change, and securing continued financial support from development partners will also be crucial to the program’s success.

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It further said that Pakistan continuously implemented the policy under the standby arrangement signed in 2023-24. Through this, it said further, the country took important steps to restore economic stability.

"While progress has been made, Pakistan must continue to implement appropriate reforms to avoid falling further behind other developing countries," the IMF warned, adding that Pakistan's weaknesses and problems remain serious.

In a major development, the International Monetary Fund (IMF) Executive Board, during a meeting in Washington on Wednesday night, approved a much-awaited $7 billion loan for Pakistan.