The International Monetary Fund (IMF) has reached a staff-level agreement with Pakistan for a $1.3 billion loan package for a period of 28 months to support the country's efforts to mitigate and adapt to climate change.

The new deal comes with an agreement on the first review of the ongoing $7 billion bailout programme as IMF praised Pakistan's progress in restoring macroeconomics stability and rebuilding confidence despite a challenging global environment.

According to government sources in the finance department, Pakistan has been able to show steady progress in terms of inflation with the range being maintained within one per cent to 1.5 per cent during March.

"This follows a slowdown to its lowest level in almost a decade in previous months," maintained the monthly economic outlook report by the finance ministry.

"Upon approval by the IMF board, Pakistan will have access to approximately $1 billion under the Extended Funding Facility (EFF), bringing total disbursements under the programme to around $2 billion," the IMF stated.

Muhammad Aurangzeb, Pakistan's Federal Minister for Finance said that there was positive optimism prevailing primarily due to the government policies, executed in line with the IMF demands.

"We remain committed to stay on course and continue to execute structural reforms with respect to taxation, energy and SOEs to put our country on the trajectory of sustainable productivity and export-led growth," he said.

It was the IMF EFF bailout package that averted the imminent default of the Pakistan's economy. The $7 billion IMF bailout helped the country's $350 billion economy to stabilise, giving some breathing space for Islamabad to stay away from a total financial collapse.

"While economic growth remains moderate, inflation has declined to its lowest level since 2015, financial conditions have improved, sovereign spreads have narrowed significantly, and external balances are stronger," maintained IMF.

The approval for the first review of the IMF EFF facility for Pakistan will also help in securing $1 billion ahead of the annual budget.

However, IMF has taken notice of the country's geopolitical situation, warning that the elevated downside risks including geopolitical shocks to commodity prices, rising protectionism and tightening global financial conditions, could undermine Pakistan's hard-won macroeconomic stability.

"Climate-related risks continue to pose a significant challenge for Pakistan, creating a need to build resilience including through adaptation measures. In this regard, it is critical to stay the course and entrench the progress achieved over the past one-and-a-half years, building resilience by further strengthening public finances, ensuring price stability, rebuilding external buffers and eliminating distortions in support for stronger, inclusive and sustained private sector-led growth”, maintained IMF mission chief Nathan Porter.