Pakistan and the International Monetary Fund (IMF) have reached a three-year, $7 billion (€6.4 billion) aid package deal after an emergency loan in the summer of 2023 saved it from a sovereign debt default amid multiple challenges.

The new program, which the IMF announced on Saturday, still needs validation from the fund's executive board.

The South Asian country of more than 240 million is struggling to cope with economic consequences of the COVID-19 pandemic, Russia's invasion of Ukraine and massive flooding that hit a third of the country in 2022.

The country is also facing soaring inflation.

What is the deal and its requirements?

The IMF said the deal, Pakistan's 24th bailout in more than six decades, aims to "cement macroeconomic stability and create conditions for stronger, more inclusive and resilient growth."  

The money is to come to Pakistan in the form of loans.

The government in Islamabad under Prime Minister Shehbaz Sharif has committed to a number of reforms to reach the deal, among them a major effort to increase the country's tax revenue.

During the 2024-25 fiscal year, which starts on July 1, it aims to take in nearly $46 billion in taxes, a 40% increase on the previous year.

Just 5.2 million people filed a tax return in 2022, with most Pakistanis working in the informal sector.

Finance Minister Muhammad Aurangzeb has vowed to increase taxpayer numbers, with authorities so far introducing measures such as blocking mobile phone SIM cards belonging to non-filers and restricting their travel abroad.

Islamabad also aims to rein in its fiscal deficit by 1.5% to 5.9% in the coming year, in accordance with another key demand from the IMF. 

The government was already forced to introduce unpopular austerity measures to obtain the last bailout, but Pakistan still holds very high foreign debt, at $242 billion.

The IMF says that half the government's income in 2024 will go toward servicing that debt.

tj/wd (Reuters, AFP)