Photo used for illustrative purpose.
The standby credit fund is meant to save cash-strapped Pakistan from default.
The two sides reached the staff-level agreement during talks in Islamabad, a statement from the IMF said. Pakistan's government also confirmed the deal and hailed it.
Ahead of the bailout in July, Pakistan had to undertake a slew of measures demanded by the International Monetary Fund (IMF), including revising its budget, a hike in its policy rate, and increases in electricity and natural gas prices.
The funds to be issued are a second tranche of the bailout, which is subject to an approval from the IMF's executive board.
According to the IMF’s announcement on Wednesday night, IMF staff and the Pakistani authorities have reached a staff-level agreement on the first review under the Standby Arrangement (SBA), subject to approval by the IMF’s Executive Board.
"Upon approval around $700 million (SDR 528 million) will become available bringing total disbursements under the programme to almost $1.9 billion," IMF Pakistan mission chief Nathan Porter said in a statement.
An IMF mission led by Porter, which has been in Pakistan for two weeks for technical and policy talks, concluded its visit on Wednesday. It reviewed whether Pakistan was on track to meet benchmarks set under the standby arrangement agreed in July, which had immediately disbursed a first tranche of $1.2 billion to help the South Asian economy avert a sovereign debt default.
The release of the $700 million still must be approved by the IMF's management and executive board, though such approvals are generally a formality.
The development comes at a time when Pakistan is facing economic crisis with worsening inflation that is driving up food prices. It also comes ahead of parliamentary elections scheduled for February.
Currently, an interim government headed by Anwaar-ul Haq Kakar is running day-to-day affairs of the government.
Hours before the announcement of the agreement, Kakar met with IMF's mission chief, Nathan Porter, and its resident representative for Pakistan, Esther Perez Ruiz, at his office, according to a government statement.
It said the IMF officials apprised Kakar of the status of the staff negotiations conducted in Islamabad.
Pakistan was facing an acute balance of payment crisis, with its foreign exchange reserves diminished to barely three weeks of controlled imports, along with historically high inflation and an unprecedented currency devaluation.
Under the bailout deal, the IMF also got Pakistan to raise $1.34 billion in new taxation to meet fiscal adjustments. The measures fuelled all time high inflation of 38% year-on-year in May, the highest in Asia, which still is hovering above 30%.
"Inflation is expected to decline over the coming months amid receding supply constraints and modest demand," the IMF said, warning that Pakistan would remain susceptible to significant external risks, including the intensification of geopolitical tensions, resurgent commodity prices, and the further tightening in global financial conditions.
"The agreement supports the authorities' commitment to advance the planned fiscal consolidation, accelerate cost-reducing reforms in the energy sector, complete the return to a market-determined exchange rate, and pursue state-owned enterprise and governance reforms to attract investment and support job creation, while continuing to strengthen social assistance," the IMF statement added.
It said a nascent recovery anchored by the stabilization policies under the programme was underway.
"The Agreement with the Fund has set the stage to bring country out of economic difficulties," Prime Minister Shahbaz Sharif wrote on Twitter.
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