Pakistan is in dire need of financial help from the International Monetary Fund (IMF) due to severe economic crisis. However, the release of $1.1 billion, which is part of a $6.5 billion bailout package signed in 2019, has been delayed since November 2022 due to differences over policy reforms and external financing.
It has been a case of “one step forward, two steps back” for the coalition government since February, when “formal” talks between Pakistan and the IMF commenced for the completion of the ninth review. Every time the coveted agreement appears to be close at hand, a new obstacle appears.
The IMF has asked Pakistan to implement measures such as a market-based exchange rate, higher fuel prices, fiscal consolidation, and structural reforms to improve governance and competitiveness. These measures have already caused inflation to soar to a record high of 36.4% in April 2023 and have triggered public discontent and political opposition.
The most recent obstacle was revealed on Friday when the IMF stated that the 9th review of the bailout program would be finished once the required financing was in place. The government will also need to satisfy the global lender regarding the policies it wishes to implement, including the budget for the fiscal year 2023–24.
The global lender statement exposes a growing lack of confidence between Pakistan and the IMF and refutes the government’s assertion that all earlier efforts required to conclude the 9th review were met. The budget is expected to be presented in June 2023 before the end of the current IMF program.
Pakistan has also had difficulty obtaining sufficient external financing to fulfill its expected $16 billion balance of payments deficit for the fiscal year ending in June 2023. The United Arab Emirates, Saudi Arabia, and China all pledged their support to the country in March and April 2023, but these commitments fall short of the IMF’s demand for complete finance assurance.
According to Fitch Ratings, the country faces a total of $3.7bn of debt payments in the next two months till the end of June. About $700m in maturities are due in May and $3bn in June.
The outcome of the negotiations is crucial for Pakistan’s economic stability and growth prospects. The IMF program’s successful conclusion would aid in restoring investor confidence, attract foreign investment, and reduce debt constraints. If an agreement couldn’t be reached, the possibility of default would escalate and trigger a currency crisis that would aggravate the already worsen social and political situation.
