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
Iran, US continue escalating attacks, recriminations over peace deal
US Central Command said earlier that its forces had carried out fresh strikes after a Panama-flagged tanker was attacked by an Iranian drone on Saturday.
Iran and the US continued their attacks in the Gulf as each accused the other of violating an increasingly precarious interim deal signed less than two weeks ago to end their four-month-old war, Reuters reported.
Shortly after President Donald Trump warned the US might “militarily complete the job”, Iran early on Sunday launched missiles and drones on US military sites in Kuwait and Bahrain, continuing a series of escalating attacks.
Beyond the Gulf, Israel said it had struck Iran-backed Hezbollah militants in southern Lebanon as fighting continued in an area Tehran says is key to its peace deal with Washington.
The U.S. military said earlier it had struck Iran again, hours after a tanker was hit in the Strait of Hormuz, the world’s most important energy shipping route, which Iran had largely cut off for most of the conflict.
The 14-point U.S.-Iran interim agreement was meant to halt the fighting, which the US and Israel started on February 28, and reopen the strait to shipping while talks proceeded on more deep-seated issues, such as Iran’s nuclear programme.
One round of mediated talks, led by Vice President JD Vance and Iran’s parliamentary speaker, Mohammad Baqer Qalibaf, was held in Switzerland a week ago and Washington then waived sanctions on Tehran, but the fighting and recriminations have since resumed and intensified.
“There may come a point when we are no longer able to be reasonable, and will be forced to militarily complete the job that we very successfully started,” Trump posted on social media. “If that happens, the Islamic Republic of Iran will no longer exist!”
About an hour after Trump’s post, the Kuwaiti army said its air defences were responding to “hostile” missile and drone attacks, while sirens sounded in Bahrain, according to that country’s interior ministry.
Iran’s Islamic Revolutionary Guard Corps said its navy and air forces had launched missile and drone operations targeting US military sites in Kuwait and Bahrain in response to recent US strikes against Iran, read the report.
The Guards said in a statement the US strikes had violated the ceasefire and “will result in the complete halt of all diplomatic processes”, according to state-run Press TV. The IRGC navy command said American bases in the region “will experience hell in the coming days”.
A US official, confirming the attacks on US facilities, told Reuters there were no reported US casualties or major damage to US sites in the Middle East but that the situation was still unfolding.
Hours later, alarms sounded for a second time in Bahrain, and the foreign ministry there condemned the attacks as a deliberate and repeated violation of the kingdom’s sovereignty and security. It urged the U.N. Security Council to hold an urgent session to hold Iran accountable.
US Central Command said earlier that its forces had carried out fresh strikes after a Panama-flagged tanker was attacked by an Iranian drone on Saturday.
“Iran was given a chance to honor the ceasefire agreement but elected not to,” Central Command said in a statement, adding that its strikes were “in direct response to continued Iranian aggression against commercial shipping” and targeted Iranian military surveillance, communications, air defence, drone storage and mine-laying facilities.
Iranian state broadcaster IRIB said explosions were heard in Sirik in southern Iran, without providing details. The Guards said “America’s blind shots at Sirik will not resolve our dominance over the Strait of Hormuz. But our shots at violators will remind the rest of the vessels of the clear passage route.”
Saturday’s tanker attack in the strait followed one on a cargo ship on Thursday that triggered the latest escalation. Iran is seeking to assert control over the strait, which carried one-fifth of global oil and LNG supplies before the war and which had just begun to reopen after months of disruption, Reuters reported.
Hundreds of ships, including tankers laden with oil, have been blockaded inside the Gulf since war broke out. As they began leaving through the strait over the past two weeks, oil prices have tumbled close to pre-war levels on the surge in supply.
Washington has been promoting a southern lane along the coast of Oman, while Tehran, which ultimately aims to charge fees for use of the strait, wants ships to use a northern route through its waters and under its control.
In Lebanon, Israel said on Sunday it had killed Hezbollah militants armed with rocket-propelled grenades and struck a rocket launcher in the Nabatieh area.
Iran accuses the US of violating its commitment under the peace deal to sustaining a ceasefire in Lebanon, which US ally Israel invaded in March in pursuit of Hezbollah.
Israel, which is not a party to the US-Iran deal, and Lebanon have repeatedly agreed to US-brokered ceasefires, the latest on Friday. But these have had only limited effect, with Israel insisting it will not withdraw from Lebanese territory it has seized and Hezbollah repeatedly rejecting calls to give up its arms as long as Israeli troops remain in place.
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.
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