By Staff Reporter
KARACHI: The International Monetary Fund (IMF) continues its active involvement with Pakistan in the pursuit of securing funding and policy assurances, aiming to achieve a consensus on the ninth review of the $6.7 billion loan that was initially agreed upon in 2019, said a spokesperson of the Washington-based lender.
The statement comes in the wake of violent clashes that erupted across the country between supporters of former Prime Minister Imran Khan and the police. The tensions escalated after Pakistan’s anti-corruption agency arrested the former prime minister on Tuesday.
Pakistan is currently bracing itself for tightly-contested elections scheduled for the autumn. The country is facing its most severe economic crisis in decades, with depleting reserves and an IMF bailout program set to expire in June. Moreover, alternative sources of financing are scarce.
Despite implementing various measures, including a floating exchange rate, additional taxes, and increased energy tariffs, Pakistan has failed to convince the IMF to resume the bailout program.
In response to Khan’s arrest, the IMF declined to comment but stated that there is no indication that Pakistan intends to pause negotiations on disbursement from the current program, according to a report by Bloomberg newswire.
“The Pakistani authorities have committed to refraining from introducing a fuel cross-subsidy scheme in F23 and beyond,” the IMF stated, referring to a fuel package announced by Prime Minister Shehbaz Sharif that has not yet been finalized.
The release of $1.1 billion under the approved bailout program has been delayed since November, and a staff-level agreement has yet to be reached. The program is scheduled to conclude in June, just before the budget for the next fiscal year.
The IMF Executive Board is due to meet until May 17. However, Pakistan’s ninth review under the Extended Fund Facility (EFF) program is absent from the agenda.
With foreign-exchange reserves at a meager $4.5 billion, Pakistan’s economic situation is deemed extremely fragile. This amount is barely sufficient to cover one month’s worth of imports, further exacerbating the nation’s economic challenges.
S&P Global Ratings estimates that Pakistan’s gross external financing requirements, as a percentage of current-account receipts plus usable reserves, will rise from 133 percent in 2023 to 139.5 percent in fiscal year 2024.
In a recent report, the Economist Intelligence Unit (EIU) highlighted the likelihood of Pakistan defaulting on its external debt obligations by early 2024. The report attributes this to limited foreign-exchange reserves for debt servicing and the conclusion of the IMF loan by the third quarter of 2023.
The EIU report criticizes Pakistan’s poor policy choices over the years and underscores its weaker economic position compared to other emerging Asian markets, such as Bangladesh. Despite ongoing reforms, the report predicts that Pakistan’s economic growth will fall short of its potential from 2023 to 2027.
According to the report, Pakistan faces the challenge of repaying $77.5 billion in external debt between April 2023 and June 2026, with immediate debt servicing obligations amounting to $4.5 billion between April and June 2023. The country’s cash-strapped situation has raised concerns among investors regarding its debt sustainability once the IMF package concludes.
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