Pakistan Reader# 608, 6 June 2023
Subiksha S
On 17 November 2022, in a bid to rescue Pakistan from its severe economic crisis and the risk of default, the International Monetary Fund (IMF) agreed to revive a USD 6 billion bailout package. The decision comes as Pakistan's foreign exchange reserves dropped below USD 3 billion, highlighting the urgent need for financial assistance to prevent an economic collapse. As an initiative, the IMF has approved the disbursement of over USD 1.1 billion to Pakistan after the government implemented certain measures. However, the path to securing the bailout has not been smooth. The package had been stalled earlier this year due to concerns raised by the IMF regarding Pakistan's compliance with the agreed conditions.
Pakistan's economic turmoil has been exacerbated by political instability and devastating flooding, further underscoring the need for external support. To address the financial challenges, an IMF mission led by Nathan Porter visited Islamabad from 31 January to 9 February 2023. However, negotiations were halted as the two sides struggled to reach a consensus on external financing estimates and specific domestic fiscal measures.
On 9 May, the potential consequences of failing to secure an agreement with the IMF were highlighted by Pakistan's Federal Minister for Power, Khurram Dastgar Khan. He emphasized the increased reliance on China if an agreement was not reached, signaling the country's willingness to seek financial assistance from friendly nations. Pakistan's economic woes, including low foreign exchange reserves and high inflation, have further compounded the situation.
Efforts to revive the IMF bailout package gained momentum as Prime Minister Shehbaz Sharif reached out to IMF Managing Director Kristalina Georgieva on June 1. Sharif expressed Pakistan's intention to secure a new bailout package, aiming to avoid a potential default. The Finance Ministry believes that a follow-up program is necessary to reinforce reforms and repay the country's debt. However, this stance contradicts Finance Minister Ishaq Dar's previous commitment to reducing dependence on the IMF.
The IMF chief emphasized that Pakistan must fulfill special conditions and implement market-driven exchange rate policies. Minister of State for Finance and Revenue, Dr. Aisha Ghaus Pasha, criticized the IMF's intervention in Pakistan's internal affairs and expressed concerns about the delay in finalizing the bailout package. Nonetheless, the government remains committed to completing the current program and engaging with the IMF to address economic challenges and ensure sustainable growth.
On 3 June, Finance Minister Ishaq Dar voiced concern over the unprecedented delay in resuming the IMF program. Pakistan has been eagerly awaiting the completion of the ninth review of the bailout since November of the previous year. Talks on the staff-level agreement have stalled due to difficulties in securing the necessary financing assurances. Ishaq Dar reassured that Pakistan will not default and highlighted the government's implementation of challenging economic reforms. He dismissed predictions of default and emphasized that Pakistan's assets outweigh its external debt. The finance minister also outlined plans for long-term development, including an agricultural revolution and the establishment of a sovereign wealth fund.
On 6 June, Prime Minister Shehbaz Sharif, attributed Pakistan's challenges to the policies of the previous government while expressing hope for finalizing a deal with the IMF. He emphasized that all requirements have been met, acknowledging the support of the country's people and friendly nations in overcoming economic turmoil. The failure to secure the ninth review could deplete foreign exchange reserves and worsen debt sustainability, making the IMF program crucial for Pakistan's economic recovery and solvency.
The ongoing engagement between the IMF and Pakistani authorities aims to address economic challenges and ensure sustainable growth, emphasizing the significance of a collaborative approach in navigating the complexities of Pakistan's financial landscape. Both parties recognize the urgent need to stabilize the economy, strengthen fiscal policies, and implement structural reforms to promote long-term development. By fostering constructive dialogue, the IMF and Pakistani authorities can work together to find viable solutions that not only address immediate financial needs but also lay the foundation for a resilient and prosperous future. The success of this engagement will determine the trajectory of Pakistan's economic recovery, its ability to attract foreign investment and its overall financial stability in the global context.
References
Shahbaz Rana, “Pakistan keen to cut a ‘new’ IMF deal,” The Express Tribune, 1 June 2023
Gibran Naiyyar Peshimam, “IMF to wrap up Pakistan bailout review once financing in place,” Reuters, 5 May 2023
“Pakistan could default without IMF bailout, warns Moody’s,” Dawn, 10 May 2023
“New IMF programme?,” Dawn, 3 June 2023
Syed Irfan Raza, “PM Shehbaz confident of IMF deal ‘this month’,” Dawn, 6 June 2023
“Delay in IMF programme ‘unprecedented’, says Dar,” Business Recorder, 3 June 2023
“PM sees IMF deal materialising this month,” The Express Tribune, 6 June 2023
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