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Pakistan clinches last-gasp $3 billion IMF bailout

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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.

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Iran defends two-day proposal for peace talks after US rejects conditions

Iran defended a proposal on Monday to restart peace talks in as ​few as two days as the ‌most reasonable offer on the table, after US Secretary of State Marco Rubio called some of ​Iran’s conditions “outrageous and ridiculous”.

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Iran defended a proposal on Monday to restart peace talks in as ​few as two days as the ‌most reasonable offer on the table, after US Secretary of State Marco Rubio called some of ​Iran’s conditions “outrageous and ridiculous”, Reuters reported.

“Is it unreasonable that ​Iran demands that US illegal sanctions ⁠and its naval blockade must be lifted ​before negotiations start and that the war should ​end on all fronts?” Foreign Ministry spokesman Esmaeil Baghaei told a weekly press conference in response to ​Rubio’s remarks.

Iran defended a proposal on Monday to restart peace talks in as ​few as two days as the ‌most reasonable offer on the table, after US Secretary of State Marco Rubio called some of ​Iran’s conditions “outrageous and ridiculous”.

“Is it unreasonable that ​Iran demands that US illegal sanctions ⁠and its naval blockade must be lifted ​before negotiations start and that the war should ​end on all fronts?” Foreign Ministry spokesman Esmaeil Baghaei told a weekly press conference in response to ​Rubio’s remarks.

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Explosions heard in areas in southern Iran, Iranian media report

Earlier on Saturday, Tasnim news agency ‌said ⁠two missiles struck Qeshm Island with no official information on possible damage.

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Explosions were heard on Saturday evening in several areas in southern Iran, including on Qeshm Island in the Strait of Hormuz, Iranian state ​television reported.

Iran’s state TV suggested that the explosions might be linked to ‌Iranian military activities in the strategic waterway, which has become subject to repeated attacks on commercial shipping since the war erupted between the US and Iran in February.

It said Iranian officials have ​not confirmed any missile strikes on the areas, while the semi-official Tasnim news ​agency cited a source as saying that the explosions heard on Qeshm ⁠Island were not related to missile strikes.

Iran’s Revolutionary Guards Navy said early on ​Sunday that two oil tankers were on fire after hitting mines as they attempted to ​pass through an “unauthorized route” in the strait. It was not immediately clear if the incidents referred to by the IRGC were linked to the sound of explosions heard in southern Iranian areas.

Iran has hit ​vessels it says have violated its restrictions on passage through the waterway, as it ​seeks to assert control over the strait and exert pressure on Washington.

Earlier on Saturday, Tasnim news agency ‌said ⁠two missiles struck Qeshm Island with no official information on possible damage.

The reported explosions come days after the US carried out strikes on the island. A US official said those strikes were limited and not a resumption of major combat operations.

The US military said on ​Saturday evening that its ​forces disabled a commercial ⁠vessel that tried to get through the US blockade of Iran.

The US Central Command said one of its aircraft fired at ​the vessel’s stern and disabled the ship after it attempted to ​violate the ⁠blockade.

Countries in the region had been anticipating that US President Donald Trump, who has held off on strikes on Iran during the weeks leading up to Tuesday’s midterm elections, could ⁠restart ​attacks once the voting was over. Iran has repeatedly ​said it would respond to new attacks by striking at US and Israeli targets in neighboring countries.

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Pakistan’s leaders dread US Democrats’ win but its households are praying for it

Pakistan’s courtship of Trump, capped by its mediation in ​the Iran war, earned it a close relationship with his administration. That access has yet to deliver clear economic gains, and congressional scrutiny of Islamabad’s dealings with Trump’s inner ​circle now threatens the rewards its leaders hoped would follow.

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Pakistan’s leaders spent two years courting US President Donald Trump, but after the Democrats’ win in Tuesday’s congressional vote, they are preparing for scrutiny ​of their access to the White House.

Ordinary Pakistanis see the result differently. Many hope the shift in Washington will ease a cost-of-living crisis intensified ‌by the US-Israel war on Iran, Reuters reported.

“We believe meaningful negotiations with the current US administration are not possible, and the ongoing bloodshed will not end until there is a change in [the US] ​government,” Karachi resident Sajjad Ali said.

“We want peace, economic improvement and a reduction in the rising oil prices.”

Asim Zafar, also from Karachi, said he hoped ​the results would rein in Trump. “It could bring changes in important policies and perhaps help prevent some of the injustices being committed ⁠against Muslim countries,” he said.

But for Pakistan’s government and powerful military leadership, analysts say, the outcome is far more worrying.

Pakistan’s courtship of Trump, capped by its mediation in ​the Iran war, earned it a close relationship with his administration. That access has yet to deliver clear economic gains, and congressional scrutiny of Islamabad’s dealings with Trump’s inner ​circle now threatens the rewards its leaders hoped would follow.

A BET ON ONE MAN

The courtship began early in Trump’s second term, with army chief Asim Munir — who Trump has repeatedly described as his “favourite field marshal” — as Islamabad’s main channel to the White House.

Their June 2025 lunch took place unusually without Pakistani civilian officials present, which put the military at the centre of the rapprochement.

According to Pakistan’s military, ​their talks went beyond security to cooperation in mining, energy and cryptocurrency.

Pakistan then joined Trump’s Board of Peace and nominated him for the Nobel Peace Prize, crediting him with ​helping end its May 2025 conflict with India. New Delhi denies US mediation halted hostilities.

Earlier this year, Iran mediation gave the courtship strategic substance: Islamabad relayed messages and hosted April talks between the ‌US and ⁠Iran, but the eventual Islamabad Agreement quickly faltered.

For consumers, Pakistan’s rising diplomatic influence has offered little protection from the war’s costs while the payoff for the state has also been thin. The US Export-Import Bank approved $1.25 billion for Pakistan’s Reko Diq copper and gold project in December 2025. But Pakistan’s signature $10 billion request for a US Treasury facility remains unanswered.

DEALS UNDER SCRUTINY

Pakistan’s outreach, public and private, now carries political risk because several arrangements involve Trump’s family or close associates.

Islamabad has signed memoranda to explore payments in USD1, a stablecoin issued ​by the Trump-linked World Liberty Financial. At ​the signing in January, Finance Minister ⁠Muhammad Aurangzeb said innovation should be “aligned with regulation, stability, and national interest.”

It has also signed another memorandum to redevelop Manhattan’s Roosevelt Hotel, a deal negotiated by envoy Steve Witkoff, and placed a limited drone order with Powerus, whose investors include Trump’s sons Donald Jr. and ​Eric.

“There are no conflicts of interest,” White House spokeswoman Anna Kelly told Reuters in September, when asked about Powerus.

Husain Haqqani, ​a former Pakistani ambassador ⁠to Washington and senior fellow at the Abu Dhabi-based Anwar Gargash Diplomatic Academy, said Pakistan’s leaders had “built a transactional relationship” with Trump’s team. Some arrangements involving the president’s friends and relatives “might not last,” he said. “Pakistan seems totally unprepared for that scrutiny.”

Daniel Markey, a senior fellow at the Washington-based Stimson Center, warned that investigations could taint the wider relationship if dealings appeared ⁠driven by ​private interests.

From Pakistan’s perspective, there may still be cards left to play, analysts said.

The Atlantic Council’s Michael ​Kugelman said Pakistan’s counterterrorism cooperation and Iran diplomacy enjoyed bipartisan support, and Democrats would be more likely to blame problematic deals on Trump than on Pakistan.

But “the risk for Pakistan is that it put so many of ​its diplomatic eggs in the White House basket that it won’t have anything left for the Democrats,” Kugelman said.

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