Regional
Pakistan clinches last-gasp $3 billion IMF bailout
Pakistan secured a badly-needed $3 billion short-term financial package from the International Monetary Fund on Friday, giving the South Asian economy respite as it teeters on the brink of default.
In a long-awaited decision for Pakistan, the IMF said it had reached a staff-level deal with the 220 million nation, which will now be subject to approval by its board in July.
The new nine-month standby arrangement came hours before a current IMF agreement expires, offering relief to Pakistan, which is battling an acute balance of payments crisis.
Prime Minister Shehbaz Sharif said it would put Pakistan “on the path of sustainable economic growth”.
With sky-high inflation and foreign exchange reserves barely enough to cover one month of controlled imports, which analysts say Pakistan’s economic crisis could have spiraled into a debt default in the absence of an IMF deal, Reuters reported.
The deal came only after Sharif held marathon meetings with IMF head Kristalina Georgieva on June 22, which he said represented “a turning point” as the fund’s managing director had not initially appeared very forthcoming.
Pakistan will receive formal documents on the deal later on Friday, Finance Minister Ishaq Dar told Reuters, which he said he would “sign, seal and return by tonight”.
The new deal, which Dar said on Thursday was expected soon, will disburse an upfront amount of $1.1 billion shortly after the IMF board’s meeting in July, he said.
Dar said Pakistan aimed to take the central bank’s foreign exchange reserves to $14 billion by the end of July. “We have stopped the decline, now we have to turn to growth,” he added.
Pakistan’s sovereign dollar bonds were trading higher after the announcement, with the 2024 issue enjoying the biggest gains, up more than 8 cents at just above 70 cents in the dollar, according to Tradeweb data.
The gains were most pronounced in shorter-dated bonds, reflecting lingering skepticism over the longer-term fiscal outlook for the country.
The $3 billion IMF funding is higher than expected as it looks set to replace the remaining $2.5 billion from a $6.5 billion longer-term Extended Fund Facility agreed in 2019.
The deal will also unlock other bilateral and multilateral financing. Long-time allies Saudi Arabia, the UAE and China have already pledged or rolled over billions of loans.
“This will support near-term policy efforts and replenish gross reserves,” the IMF said.
The new arrangement builds on the 2019 programme, IMF official Nathan Porter said in a statement, adding that Pakistan’s economy had faced several challenges in recent times, including devastating floods and rising commodity prices.
“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.”
Porter also pointed out the power sector’s buildup of arrears and frequent power outages, Reuters reported.
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 IMF talks.
The IMF said it would want steadfast policy implementation by Pakistan to overcome challenges, “particularly in the energy sector”, where it expects a rise in electricity prices.
Dar confirmed that the hike will come ahead of the IMF board review of the bailout, saying the rebasing to be done in July will make about three to four rupees a unit difference.
“Reform does not, must not, mean raising tariff endlessly,” Pakistan’s Minister for Power Khurram Dastgir told Reuters.
With the tenure of the current government ending in August, Dastgir said it had put in place an “aggressive medium-to-long-term plan” to increase renewable energy which was only possible if long-term assistance is available.
Reforms taken
Islamabad has taken measures demanded by the IMF since its mission arrived in Pakistan earlier this year, including revising its 2023-24 budget and a key policy rate hike to 22% in recent days.
It also got Pakistan to raise more than 385 billion rupee ($1.34 billion) in new taxation to meet the IMF’s fiscal adjustments.
The IMF said the central bank should remain proactive to reduce inflation and maintain a foreign exchange framework.
The painful adjustments have already fuelled all time high inflation of 38% year-on-year in May.
“The FY24 budget advances a primary surplus of around 0.4 percent of GDP,” Porter said, adding it will be important that the budget is executed as planned, and authorities resist pressures for unbudgeted spending or tax exemptions.
“This new programme is far better than our expectations,” said Mohammed Sohail of Topline Securities in Karachi, adding there while were a lot of uncertainties on what would happen after a new government comes to power it would “definitely help restore some investor confidence”.
‘Tough journey’ ahead
Meanwhile, on Friday night, Pakistan’s Prime Minister Shehbaz Sharif took to twitter and said while the IMF stand-by agreement “is a much-needed breather, which will help the country achieve economic stability, the nations are not built through loans. I pray for this new program to be the last one.”
He went on to thank Pakistan’s “friends & partners such as China, Saudi Arabia, UAE & Islamic Development Fund for standing by Pakistan at the time of massive economic challenges.
“Under a whole-of-the-government approach, we have worked out an Economic Revival Plan, which will focus on unlocking our strategic potential in agriculture, mine & minerals, defense production & information technology. The Plan will bring up investments of billions of dollars & create job opportunities for four million people.
“It may be a tough journey but as they say, ‘When the going gets tough, the tough gets going’,” he said.
Regional
US strikes Iran in response to attack on cargo ship in Strait of Hormuz
The U.S. did not immediately respond to Iran’s report of striking American targets, a tactic that has sought to undermine U.S. allies in the region during the conflict.
The U.S. military attacked Iran on Friday in response to an Iranian drone strike on a cargo ship in the Strait of Hormuz, with each country accusing the other of violating terms of a ceasefire agreed on last week, Reuters reported.
U.S. Central Command said aircraft struck missile and drone storage locations and coastal radar sites, later publishing a grainy black-and-white video of an explosion labeled “unclassified.” A U.S. official reported the operation had concluded.
Iran said a projectile struck the area around a pier in Sirik in southern Iran, and that Iranian naval forces responded by striking U.S. military targets in the region. Tehran did not provide details about what may have been hit.
Elsewhere, however, there were signs of progress in ending the four-month-old conflict, as Israel and Lebanon signed an agreement to end the fighting between Israel and Iran-backed Hezbollah. Both sides framed the deal as an initial step that calls for Hezbollah to disarm and Israel to withdraw troops from Lebanon, but it was not clear how it would be enforced. Hezbollah said it would not cooperate.
Tehran has said it would control the Strait of Hormuz and warned Gulf states not to side with Washington after Thursday’s attack on a cargo ship traveling near Oman’s coast. President Donald Trump blamed the attack on Iran and said it violated last week’s interim agreement.
“The unwarranted aggression against commercial shipping by Iranian forces clearly violated the ceasefire,” U.S. Central Command said in its statement announcing strikes, which it called “a powerful response to yesterday’s attack on a commercial ship that was transiting the Strait of Hormuz.”
The U.S. military said it would continue to provide “safe passage coordination and support” to commercial vessels transiting the strait.
Vice President JD Vance, once seen as a skeptic on U.S. intervention in Iran but now a Trump administration point person on the conflict, said the Americans have honored the ceasefire deal, also known as a memorandum of understanding.
“Iran signed a ceasefire agreement. We have honored it. If they have disagreements about how the MOU is being applied, they can pick up the phone. But violence will be met with violence,” Vance said on X.
Iranian state media, citing an unnamed military source, reported the strike at the port of Sirik after an explosion was heard there. The source said several warning shots had been fired from Sirik toward vessels that violated Strait of Hormuz regulations about five hours earlier, adding two warning missiles had also been launched from the nearby Karpan area toward the strategic waterway, read the report.
On Saturday, Iran’s Mehr news agency cited the head of ports at eastern Hormozgan as saying that there was no damage to the port of Sirik after the attack by the U.S. The official said the port was operating normally with no damage reported to facilities and equipment.
Iran’s Revolutionary Guards said that in response its navy “struck the locations where the terrorist U.S. military is stationed in the region” and warned that any further U.S. attacks would be met with a broader response, according to the statement carried on state media.
The ceasefire agreement gives Iran control over ship traffic in the strait, the Guards said.
“However, the United States, by provoking various fronts, sought to violate this commitment, and the necessary response was given and will continue to be given. If the aggression is repeated, our response will be broader than this,” the Revolutionary Guards said.
The U.S. did not immediately respond to Iran’s report of striking American targets, a tactic that has sought to undermine U.S. allies in the region during the conflict.
Ebrahim Azizi, the head of the Iranian parliament’s national security committee, said in response to the latest strikes that Trump has failed to show a commitment to the principles of negotiation or ceasefire.
“This reckless violation of the ceasefire will, as always, lead to retreat and regret on their part,” Azizi posted on X.
Before the renewed outbreak of violence, oil prices fell about 3% on Friday, on course for steep weekly losses, in response to oil tankers exiting the Strait of Hormuz, the conduit for one-fifth of global oil and LNG supplies before the U.S. and Israel launched the war on February 28, Reuters reported.
Saudi Aramco resumed crude loadings at its Ras Tanura terminal in the Gulf, the world’s biggest oil port, after a nearly four-month halt, shipping data showed.
Fertilizer shipments through the strait have also picked up, helping to assuage concerns about a spike in global food prices.
U.S. Secretary of State Marco Rubio — wrapping up a tour of the Gulf to reassure regional allies about the interim pact — issued a joint statement with the Gulf Cooperation Council calling for “free, unconditional, and unrestricted navigation” in the strait without tolls or “attempts to assert control.”
Iran’s foreign ministry said the strait should be governed by Iran and Oman, while Ali Akbar Velayati, top adviser to Iran’s supreme leader, warned Washington’s Gulf allies their survival depended on Tehran’s tolerance.
Regional
Iran’s Pezeshkian says without missiles his country would be ‘just like Gaza’
The Iranian president stressed that Tehran’s defensive capabilities are not open to negotiation.
Regional
US and Iran conclude high-level talks in Switzerland, mediators say
The parties agreed to a mechanism to end the fighting in Lebanon and opened a communications line to help ensure safe passages for commercial ships through the contested strait, the statement said.
The first round of talks between high-ranking U.S. and Iranian officials in Switzerland ended Monday, mediators said, after a tense opening marked by Tehran’s announcement it had again closed the Strait of Hormuz and U.S. President Donald Trump repeating his threats to resume attacks on Iran.
A joint statement from mediating nations Qatar and Pakistan said the U.S. and Iran agreed to a roadmap toward a final deal within 60 days. Technical talks will continue for the rest of the week in the Qatari-owned Swiss mountain resort of Buergenstock, according to the statement, which was released by the Qatari foreign ministry, Reuters reported.
The parties agreed to a mechanism to end the fighting in Lebanon and opened a communications line to help ensure safe passages for commercial ships through the contested strait, the statement said.
U.S. Vice President JD Vance had opened talks with Iranian officials on Sunday under the terms of a memorandum of understanding reached last week to extend a tenuous ceasefire from April for at least another 60 days. The discussions continued until the early hours of Monday.
In a post on social media, Iranian Foreign Minister Abbas Araqchi said his country had secured waivers for oil and petrochemical exports, the release of some frozen assets and the launch of a reconstruction and development plan for Iran.
The White House had no immediate comment when asked if talks had wrapped for now.
Just before talks officially began on Sunday, Fox News reported that Trump said he told Iranian officials “you won’t have a country” if they tried to close the strait again. Trump also reiterated an earlier threat that the U.S. would take over the waterway and possibly charge a toll of its own, Fox News said.
U.S. and Iranian sources provided separate accounts of the discussions in Switzerland.
Iran’s semi-official Tasnim news agency, citing an informed source, said that after Trump’s threats became public, the Iranian delegation refused to return to the room where talks were held, though messages were still being traded via Pakistani and Qatari mediators.
According to Tasnim’s source, Iranians said that the start of negotiations on nuclear matters required the delivery of other parts of the MOU, including the release of frozen assets and U.S. waivers authorizing Iranian oil exports.
“The Iranians never left and are still here meeting and negotiating deep into the night,” a U.S. diplomat involved in the talks told Reuters. “We’ve talked about the Strait, Lebanon, nuclear issues, and details of implementing the MOU, among other topics.”
High-level discussions are expected to wrap up on Monday, with technical staff remaining to conduct further talks, according to a U.S. official.
The agreement called for reopening the Strait of Hormuz, a choke point for global energy shipments, and ending all hostilities, including in Lebanon, where Israel has continued to launch deadly strikes as Iranian ally Hezbollah fires at Israeli targets.
Iran, arguing that the U.S. had failed to meet its commitment to halt fighting in Lebanon, said on the weekend that it had again stopped maritime traffic through the strait and that Sunday’s talks would not cover substantive issues such as Iran’s nuclear programme.
At the talks in Switzerland, where U.S. and Iranian officials met in the presence of Qatari mediators, Vance played down the impact of violence in Lebanon, saying progress had been made towards ending hostilities there.
“These things are always a little bit messy,” he said.
Back in the United States, Trump threatened to resume attacks on Iran if it did not rein in its allies.
“Iran must immediately stop their highly paid PROXIES in Lebanon from causing trouble,” Trump wrote on social media, apparently referring to Hezbollah. “If they don’t, we’ll hit Iran very hard again, just like we did last week, only harder!!!”
Even as Trump was threatening Iran, Vance told reporters the U.S. president had “asked us to turn over a new leaf to transform our relationship with the people of Iran.”
A U.S. diplomat late Sunday said discussions included “clarifying some of the confusing messaging from Iran on the Strait and building deconfliction mechanisms to ensure the Strait will remain fully open.”
IRAN CITES LEBANON AS REASON TO CLOSE STRAIT
Despite the announcement of a new ceasefire in Lebanon on Friday, there has been scant sign of an end to fighting there. Iran said on Saturday that as a result, it had again shut the strait, whose closure for nearly four months caused the biggest disruption of global energy supplies in history.
U.S. officials disputed that the strait was closed, but commercially available shipping data showed an immediate impact.
Five vessels passed the strait on Sunday, a sharp drop from the 26 ships spotted a day earlier, data from analytics firm Kpler showed. The data may exclude vessels that switch off their transponders while travelling in the Gulf.
Iran’s Fars news agency cited a military source as saying on Sunday that no new permits were being issued for ships to cross until further notice.
Trump said he agreed to last week’s memorandum of understanding to avert a global economic depression from high oil prices caused by the strait’s closure. Oil prices had tumbled over the past week to levels unseen since the war started on February 28 with U.S.-Israeli attacks on Iran.
Brent crude futures rose more than $1 to $81.66 a barrel in early Monday trading, following the rocky start to the peace talks.
Sunday appeared to be the quietest day in Lebanon for some time, with no reports of major violence by nightfall, after two days of heavy Israeli strikes and fire from Hezbollah fighters on Israeli positions.
More than 1 million people have fled their homes in Lebanon since Israel invaded in March to pursue Hezbollah fighters who fired across the border in support of Tehran.
Reuters journalists in southern Lebanon on Sunday saw some of the heaviest traffic since the memorandum was signed, with residents returning to their homes. Some stood beside cars backed up on the highway and waved Hezbollah flags.
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