The IMF and Pakistan have reached a staff-level agreement on policies and reforms, allowing the latter to receive over $1 billion in funding under the Extended Fund Facility (EFF).
Announcing the decision on Monday, the Washington-based lender said in a statement that this would bring the total disbursements under the programme to $3.027 billion and help unlock funding from bilateral and multilateral partners.
"Despite a difficult environment, progress continues to be made in the implementation of the EFF-supported programme. The authorities have also made progress in improving the anti-money laundering and combating the financing of terrorism (AML/CFT) framework, although some additional time is needed to strengthen its effectiveness," the statement issued on Monday read.
The Imran Khan government secured a $6 billion IMF loan in 2019 to avert a balance of payments crisis. However, the deal has remained suspended since 2020 amid the pandemic.
The lender issued $1.3 billion in April 2020 to help Pakistan address the economic impact of the COVID-19 shock.
The fund assessed that the country had made a strong economic recovery, benefiting from authorities' multifaceted policy response to the COVID-19 pandemic that has helped contain its effects.
However, the bank warned the government of emerging threats such as the widening of the current account deficit and depreciation pressures on the exchange rate.
The IMF said that institutional and fiscal reforms will help the country to exceed 4% annual growth in the financial year 2022 and 4.5% in the fiscal year after that.
The State Bank of Pakistan has already begun withdrawing pandemic-era stimulus to fight inflation, which reached a record level last month. Islamabad has also raised the power tariffs, gasoline and diesel prices despite significant criticism by the opposition parties such as Pakistan Muslim League (Nawaz) and Pakistan Peoples Party.
The Imran Khan government has received financial support from China, the UAE, and Saudi Arabia since 2019 as its forex reserves dwindled due to slowing exports and rising crude import bills.
A World Bank report suggests that the country's debt-to-Gross Domestic Product (GDP) ratio exceeded 80 percent in the first quarter of this year.