Pakistan is reportedly preparing to request a new loan of at least $6 billion from the International Monetary Fund (IMF) to assist the incoming government in repaying billions of dollars in debt due this year. The country confronts $25 billion in external debt payments in the fiscal year commencing in July, a figure nearly three times its foreign exchange reserves. With the current IMF bailout program, valued at $3 billion, set to expire in March, the new administration faces mounting pressure to secure additional financing to stave off a sovereign default.
Pakistan intends to negotiate an Extended Fund Facility (EFF) with the IMF, typically spanning three to four years, aimed at supporting policies to rectify structural imbalances, with repayments scheduled over 4.5 to 12 years. Key objectives of the upcoming IMF program include ensuring balance of payment and debt sustainability, privatizing state-owned enterprises, and enhancing tax revenues. The EFF loans are anticipated to impose stricter and more targeted conditions compared to previous arrangements.
While the IMF has expressed readiness to assist the post-election government upon request to address Pakistan’s financing challenges, it may also stipulate an independent audit of the disputed election results. These results led to the formation of a coalition government led by the party of imprisoned former leader Imran Khan, sidelining the party of Shehbaz Sharif, who has been nominated for prime minister.
Nevertheless, the extent to which the incoming coalition is willing to comply with IMF demands to secure funds remains uncertain. However, it is evident that they will encounter numerous obstacles in negotiations with the lender, given the country’s fragile economic state. Moreover, the new government will find itself compelled to implement difficult and potentially unpopular measures, regardless of the political repercussions.
