After Iran War Mediation, Pakistan Seeks $10 Billion US Currency Support; What’s Behind the Move?
Pakistan has requested the United States for a $10 billion exchange stabilisation facility. If this facility is granted, it will become a lifesaver for a country like Pakistan, which is financially struggling. Pakistan has made this request for the first time after improving its diplomatic image, sparking hopes that it could pursue economic benefits from Washington and other partners by mediating negotiations over the war in Iran.
Islamabad is requesting a $10 billion Bilateral Exchange Stabilisation Support Facility between the United States and the Pakistani government, with a maximum five-year maturity period, from U.S. Treasury Secretary Scott Bessent.
Even as Islamabad implements tougher fiscal and monetary policies in accordance with the International Monetary Fund program, the facility, if approved, would strengthen Pakistan’s reserves, reduce pressure on the rupee, and ease its reliance on multilateral finance.
Pakistan is still under the IMF’s $7 billion discipline, which has necessitated reforms, budget cuts, and politically difficult tax increases.
Pakistan Avoided IMF Default in 2023
Exchange stabilisation facilities are uncommon US Treasury-backed tools that can sustain foreign currency reserves and aid in currency stabilisation by offering dollars, swaps, or guarantees. They are not the same as the US Federal Reserve’s ongoing dollar swap agreements with some major central banks.
After obtaining a $3 billion IMF standby agreement and later obtaining a $7 billion Extended Fund Facility in addition to a separate $1.3 billion loan targeted at enhancing resilience against climate change and natural disasters, Pakistan successfully managed to avoid a possible default in 2023.
Apart from this, Pakistan’s reserves still majorly depend on countries like China and Saudi Arabia on official financing, rollovers and deposits.
IMF Reforms Bring Stability, but Challenges Continue
Pakistan’s economy has become more stable after carrying out reforms under the International Monetary Fund (IMF) programme. However, these measures have come at a cost. The government has raised taxes, reduced spending, and has less room to invest in development and welfare schemes. In April, Fitch Ratings said the IMF programme had improved Pakistan’s ability to secure funding and helped rebuild its foreign exchange reserves, providing some protection against global economic shocks.
Pakistan Looks to US for Economic Support
Despite progress, major challenges remain for Pakistan. Fitch warned the country with the fact that higher energy prices and supply disruptions could quickly deplete the nation’s foreign exchange reserves. Low foreign investment is being hampered by economic uncertainty, security worries and a weak export sector. To improve its financial position, Pakistan is strengthening economic ties with the United States. It has signed a stablecoin deal linked to Donald Trump’s family business, pursued the redevelopment of New York’s Roosevelt Hotel, and attracted US mining investments, including a $1.2 billion financing commitment for the Reko Diq project.
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