Shahbaz Sharif meets with UK PM Keir Starmer during a bilateral meeting at the consul general's residence in New York on Wednesday. Reuters

Pakistan said on Thursday it would have to go through "transitional pain" after the International Monetary Fund (IMF) agreed to a new relief package of $7 billion to bolster its faltering economy.

Although the South Asian nation's economy has stabilised since it came close to defaulting last summer, it is dependent on IMF bailouts and loans from friendly countries to service its huge debt, which swallows up half of its annual revenues.

"There will be transitional pain, but if we are to make it the last programme, then we have to carry out structural reforms," Minister of Finance Muhammad Aurangzeb told local broadcaster Geo News.

Speaking on the sidelines of the United Nations General Assembly in New York on Wednesday, Prime Minister Shahbaz Sharif said the deal came through thanks to the "tremendous support" of Saudi Arabia, China and the UAE.

"In the final phase (of negotiations), the IMF's conditions were related to China. The way the Chinese government supported and strengthened us during this time is something I am truly grateful for," he told reporters shortly before the deal was announced.

The IMF said in a statement it would issue an "immediate disbursement" of around $1 billion.

The three-year loan programme "will require sound policies and reforms" to support Pakistan's ongoing efforts to strengthen its economy "and create conditions for a stronger, more inclusive, and resilient growth," it added.

Pakistan in July agreed to the deal - its 24th IMF payout since 1958 - in exchange for unpopular reforms, including cutting back on power subsidies and widening its chronically low tax base.

Last month, Aurangzeb had said Pakistan was negotiating a $12 billion loan reprofiling from bilateral lenders.

The amount comprised $5 billion from Saudi Arabia, $4 billion from China and $3 billion from the UAE for a three- to five-year period.

Reacting to the news, Pakistan's stock exchange briefly reached a new record high before losing ground in later trade.

Kaiser Bengali, a Pakistani economist, told reporerters: "This deal will help us pay back our immediate debts, but nothing more than that.

"The only economic reforms that we are required to implement is more taxes. There is no progress on reducing government expenditures."

At the end of 2023, Pakistan - long locked in a cycle of overlapping political and economic crises - had amassed a total debt of more than $250 billion, or 74 per cent of GDP, according to the IMF.

About 40 per cent of its debt is owed to external creditors in foreign currencies.

Its biggest single foreign creditor is China and Chinese commercial banks, at just under $30 billion, followed by the World Bank at more than $20 billion, according to the report.

Last year the country came to the brink of default as the economy shrivelled amid political chaos following catastrophic 2022 monsoon floods and decades of mismanagement, as well as a global economic downturn.

It was saved by last-minute loans from friendly countries as well as an IMF rescue package.

Agence France-Presse