The International Monetary Fund had warned that the macroeconomic outlook for Pakistan was still challenging as the South Asian country tried to improve its economy.

“Fiscal performance has also improved, with the general government achieving a primary surplus in FY24Q1,” the international lender said in its report on Friday. “Despite this welcome progress, the outlook is still challenging, and downside risks remain exceptionally high.”

Earlier this week, the IMF released a $700 million tranche, following the completion of the first review by the Executive Board of IMF under the $3 billion Stand By Arrangement (SBA)

On January 17, the United Arab Emirates confirmed the rollover of two deposits of $1.0 billion each, shoring up the State Bank of Pakistan’s (SBP) foreign reserves.

The IMF Executive Board had approved the nine-month arrangement with Pakistan “to support its economic stabilisation programme” last year. The development allowed for an immediate disbursement of $1.2 billion in July, with the rest to be released in phases after two quarterly reviews.

The loan programme is expected to conclude in the second week of April.

A staff-level agreement was reached between the IMF staff and Pakistani authorities regarding the first review under Pakistan’s SBA in November.

The South Asian country is likely to receive the remaining amount in March.

In its summary, the IMF said that the economic activity has stabilised and inflation has begun to gradually decline on the back of strong policy adjustment following the 2022 floods and the acute financial pressures earlier in the year.

“External pressures have eased somewhat since June, and the SBP has taken advantage of renewed inflows to begin rebuilding foreign exchange reserves,” it said.