Pakistan has achieved a crucial milestone in its financial stabilization efforts, with the International Monetary Fund (IMF) announcing a staff-level agreement. This agreement clears the path for the release of $1.1 billion from a much-needed $3 billion bailout package, crucial for Pakistan to avoid a sovereign default.
In an official statement issued on Wednesday, the IMF confirmed, “The IMF team has successfully concluded discussions with Pakistani authorities on the second and final review of Pakistan’s stabilization program.”
The United States-based lender has confirmed the disbursement of funds pending approval by the IMF’s executive board before the agreement’s expiration on April 11, as per last year’s accord.
This development follows five days of negotiations between the IMF and Pakistan’s newly elected government, led by Prime Minister Shehbaz Sharif, in Islamabad.
While the IMF acknowledged Pakistan’s recent economic and financial improvements, it noted the country’s anticipated modest growth for the year and persistent inflation exceeding targets. Additionally, the IMF emphasized the necessity for further policy reforms to tackle underlying economic vulnerabilities.
Pakistan has actively sought financial assistance from global lenders and bilateral partners to stabilize its $350 billion economy, strained over the past two years by over $130 billion in external debt and meager foreign reserves of $8 billion—barely covering eight weeks of imports for an import-reliant economy.
Despite a gradual decline, inflation remains high at 23 percent, compounded by a significant currency devaluation of over 50 percent against the US dollar in the last two years.
In response, Finance Minister Muhammad Aurangzeb has indicated the government’s intent to pursue a “longer, larger” IMF bailout package post-expiration, signaling continued efforts to address the economic challenges.
According to economist Safiya Aftab in an interview with Al Jazeera, the completion of the IMF program signifies the government’s earnest efforts to initiate the much-needed policy reforms advocated by the IMF.
However, she cautioned that the potential new bailout package under consideration by the government could present significant challenges, given the stringent conditions imposed by the lender.
“IMF will turn the screws and demand an increase in taxation and the widening of the tax base, and historically, the government has often opted for quick-fix solutions that disproportionately burden the salaried class,” she remarked.
Aftab emphasized the necessity for the government to explore privatization of state-owned enterprises as a means to generate revenue and curtail expenditure.
“Despite the challenges, the government may have no option but to adhere to the stipulated requirements,” she remarked, acknowledging that the short-term repercussions of a new IMF program are likely to include heightened inflation and increased financial strain on the public.
(Image Credit: Alzazeera)
Sources: Alzazeera