Pakistan clinched an initial approval from the International Monetary Fund for a $3 billion loan program, lowering the risk of a sovereign default.

The staff-level agreement is subject to approval by the IMF Executive Board, with its consideration expected by mid-July, the Washington-based lender said in a statement on its website. Pakistan is one of the biggest customers of the IMF with almost two dozen bailouts since the 1950s.

The funds will support the authorities’ immediate efforts to stabilize the economy from recent external shocks, preserve macroeconomic stability and provide a framework for financing from multilateral and bilateral partners, the lender said.

Pakistan agreed to raise taxes and cut spending in a dramatic effort to secure IMF aid, less than a week before the program ends. The South Asian country needs the loan to overcome a dollar crunch, ease supply shortages, and lift the economy out of a crisis ahead of elections this year.

Pakistan faces about $23 billion of external debt service for the fiscal year 2024, which begins in July, more than six times the nation’s reserves.

Pakistan could default without an IMF loan given its very weak reserves, Moody’s Investors Service warned this month. Pakistan is the last of three South Asian countries to clinch IMF funding due to delays in delivering reforms and getting creditors to agree amid the political crisis.

Pakistan increased taxes and energy prices, and allowed its currency to weaken to meet the IMF’s key demands. The rupee has lost more than 20% this year after officials devalued the currency in January, among the worst performers in the world.

Pakistan’s dollar stockpile slid almost 60% in the past 12 months to $3.5 billion as of mid-June, restricting the nation’s ability to fund imports including raw materials, and forcing many factories to suspend operations.

Pakistan has had a tumultuous track record with the IMF with the current loan program that started in 2019 stalling multiple times. The government secured staff approval for a $1.1 billion loan in August, only to have it halted due to Islamabad’s failure to meet some conditions.

Author: Karl Lester M. Yap and Faseeh Mangi