Pakistan’s Ministry of Finance and the IMF confirmed that the global lender had approved the “immediate disbursement” of a $1.1bn tranche that completes a total loan of $3bn agreed to under a deal inked last year.

The International Monetary Fund has approved the immediate release of the final $1.1 billion tranche of a $3 billion bailout to Pakistan, the global lender said in a statement, emphasising that the cash-strapped country needs to take tough measures to bring its economy back on track.

The IMF Executive Board’s decision on Monday followed a meeting between Pakistani Prime Minister Shehbaz Sharif and IMF Managing Director Kristalina Georgieva, on the sidelines of the World Economic Forum meeting in Riyadh on Sunday.

The bailout also came after the lender completed the second and final review of Pakistan’s economic reform programme supported by the IMF’s Stand-By Arrangement (SBA).

With this development, the disbursements under the SBA reached around $3 billion. All board members favoured the release of the last installment. India, however, abstained from voting.

Pakistan needs the money to overcome one of the worst economic crises in its history that had raised fears it could default on the payment of foreign debts.

The Pakistani government was required, as part of the bailout conditions, to reduce subsidies intended to cushion the impact of rising living costs. This contributed to an increase in prices, especially energy bills, and angered the public. Islamabad also imposed new taxes, another unpopular move.

But IMF’s Deputy Managing Director Antoinette Sayeh said in a statement that the country’s “determined policy efforts” have brought progress in restoring economic stability.

Moderate growth has returned, external pressures have eased and, while still elevated, inflation has begun to decline, said Sayeh, who is also the IMF’s chair.

“Given the significant challenges ahead, Pakistan should capitalise on this hard‑won stability persevering – beyond the current arrangement – with sound macroeconomic policies and structural reforms to create stronger, inclusive, and sustainable growth,” she added.

The IMF official said Pakistan will receive the loan payment this week but emphasised that Pakistan needed to “adhere to a market-determined exchange rate to absorb external shocks and broaden structural reforms to support stronger and more inclusive growth”.

“Moreover, stronger action to address undercapitalised financial institutions and, more broadly, vigilance over the financial sector are needed to ensure financial stability,” Sayeh said.

Sharif’s government had sought a new IMF deal after the current $3bn SBA with the global lender expired on April 11.

The government didn’t provide a figure, but officials have previously said they want another $8 billion from the IMF over three years.

Hours after the IMF approved the funding on Monday, Sharif said disbursement will bring increased economic stability to Pakistan. The country’s state broadcaster quoted the prime minister as saying on Monday that the bailout from the IMF proved important to save the country from default.

An IMF team is expected to visit Pakistan in May to initiate talks for a new long-term Extended Fund Facility (EFF) ranging between $6 to $8 billion with the possibility of augmentation through climate financing.

However, the exact size and time frame will only be determined after evolving consensus on the major contours of the next programme in May 2024.

If secured, it would be Pakistan’s 24th IMF bailout.