Pakistan has successfully secured a $3 billion bailout deal with the International Monetary Fund (IMF) under a stand-by arrangement (SBA). The agreement comes as Pakistan’s previous Extended Fund Facility (EFF) program, initiated in 2019, was set to expire. The IMF has highlighted several key obligations and challenges that Pakistan must address under the new arrangement.
One of the major concerns raised by the IMF is the need for the timely rebasing of tariffs in Pakistan’s power sector to ensure cost recovery, despite the country already facing high inflation in an election year. This move could potentially lead to increased prices for consumers. Additionally, Pakistan’s central bank is urged to remove import restrictions that have impeded economic growth and depleted foreign exchange reserves, which currently stand at a precarious $3.5 billion, only sufficient to cover a month’s worth of controlled imports.
The IMF has also emphasized the importance of Pakistan committing to a market-determined exchange rate and eliminating multiple exchange rate practices. This recommendation comes at a time when the Pakistani rupee has experienced a significant depreciation against major currencies. To combat rising inflation, the central bank is expected to take proactive measures, as indicated by an off-cycle 100 basis point interest rate hike.
Addressing the losses incurred by state-owned enterprises is another key priority. The IMF stresses the need for stronger governance in these entities, which have been straining government finances. Despite the government allocating only a modest sum of approximately 15 billion Pakistani rupees from a stalled privatization process, more substantial efforts are required to improve the financial performance of these enterprises.
While the IMF bailout provides substantial financial support, Pakistan is urged to continue mobilizing multilateral and bilateral assistance. Pledges from Saudi Arabia and the United Arab Emirates totaling $3 billion are expected to materialize now that the IMF deal has been finalized. Furthermore, debt rollovers from China, Pakistan’s largest creditor, will play a crucial role in managing the country’s financial obligations.
Ensuring the implementation and utilization of pledges secured earlier this year in an international donor conference will be vital. Over $9 billion in climate-related commitments were made to aid Pakistan’s recovery from the devastating floods of 2022.
In the upcoming financial year 2024, Pakistan faces external payment obligations amounting to $22 billion. Meeting these obligations will require diligent financial management and effective utilization of available resources.
The IMF emphasizes the significance of steadfast policy implementation and fiscal discipline for Pakistan’s economic success. The country must navigate challenges such as record-high inflation, a sizable fiscal deficit, and low reserves to achieve sustainable economic growth and stability.
As Pakistan moves forward with its IMF bailout program, the successful execution of reforms and the fulfillment of obligations will be critical in steering the country towards a path of economic recovery and resilience.
