IMF approves bailouts for Pakistan, Bangladesh: When is it provided to a country and what are the lending conditions?

IMF bailout: Despite strong reservations from India, the International Monetary Fund (IMF) last week approved the immediate disbursement of about $1 billion to Pakistan as part of a bailout package. After Pakistan, Bangladesh recently got the IMF's green light for receiving $1.3 billion in bailout funds, to be disbursed in multiple tranches.

What is a bailout?

A bailout generally refers to financial support extended to an entity at risk of bankruptcy. Countries typically turn to the IMF when they face severe macroeconomic challenges, such as currency crises, mounting external debt, or dwindling foreign reserves.

How does IMF release the bailout?

When a country borrows from the IMF, it commits to implementing specific policy reforms aimed at addressing the underlying economic issues that triggered the need for assistance. As per the IMF website, these policy adjustments are conditions for IMF loans and help ensure the country adopts strong and effective policies.

The IMF provides financial support through Special Drawing Rights (SDRs), an international reserve asset based on a basket of five major currencies: US dollar, Euro, Chinese Yuan, Japanese Yen, and British Pound. This support can take the form of loans, cash disbursements, bond purchases, or equity investments.

On what conditions does IMF release the bailout?

Among the conditions laid down for a country seeking financial assistance from the IMF could be certain structural reforms, such as fiscal transparency, tax reforms and reforms in state-owned enterprises.

Bangladesh and Pakistan's IMF programme – How is it different?

While the IMF's governing conditions for releasing the bailout package are uniform for all countries, what sets Bangladesh and Pakistan's bailout apart are the tranches across which the package has been approved

Bangladesh: $4.7 billion IMF programme

In June, the IMF is set to release $1.3 billion to Bangladesh following the fourth review of its $4.7 billion loan programme. As of May 2025, Bangladesh has received $2.3 billion bailout across three tranches – ECF, EFF and RSF.

Extended Credit Facility (ECF): Provides concessional financial assistance to countries with protracted balance of payments problems.

Extended Fund Facility (EFF): Aims to assist countries facing serious medium-term balance of payments issues due to structural weaknesses.

Resilience and Sustainability Facility (RSF): Supports countries in addressing long-term structural challenges, including climate change.

The June disbursement is contingent upon Bangladesh implementing reforms such as adopting a market-based exchange rate and restructuring its revenue administration.

Pakistan: $7 billion IMF programme

Pakistan's engagement with the IMF includes:

Extended Fund Facility (EFF): In September 2024, the IMF approved a 37-month EFF totaling about $7 billion to support Pakistan's medium-term economic stabilisation efforts.

Contrary to the Stand-By Arrangement (SBA) included in Pakistan's 2023 IMF bailout, the EFF focuses on structural reforms, including broadening the tax base, reducing subsidies, and enhancing fiscal discipline.