Pakistan is in discussions with the International Monetary Fund (IMF) on a potential follow-up program to its nine-month, $3 billion stand-by arrangement (SBA) but it is unlikely that the IMF will let Pakistan acquire the bail-out easily given Islamabad’s failure to fulfill its commitments.
As per media reports, cash-strapped Pakistan officially approached the IMF last week for another bailout package ranging between $6 billion and $8 billion, with the possibility of augmentation through climate financing.
Pakistan’s relationship with the IMF has become a recurring narrative, with this potentially marking its 24th engagement with the global lender. Regrettably, Pakistan stands as the most frequent and fourth-largest recipient of IMF assistance globally, a distinction highlighting deeper systemic issues.
According to Pakistan’s leading newspaper Dawn, the next few years are likely to see Pakistan trapped in low-growth mode. International lenders maintain that economic growth in the country will remain subdued, hovering in the range of 1.8pc-3.5pc in the medium term because of plummeting investment, persisting fiscal and external imbalances, and a large state presence in the economy.
The global lender’s chief Kristalina Georgieva said Pakistan had important issues to solve before the next agreement with the IMF. At an event at the Atlantic Council think tank, Georgieva said Pakistan was successfully completing its existing program, however “there are very important issues to be solved in Pakistan: the tax base, how the richer part of society contributes to the economy, the way public spending is being directed and of course, creating … a more transparent environment,” she added.
Pakistan also has another issue to deal with: money laundering and terror-financing. While Islamabad recently passed new anti money laundering and anti-terror financing laws, there is a serious issue of implementation of these laws. Many religious extremist organizations in Pakistan continue to raise funds that are then directed to terrorism in the region and elsewhere in the world. In recent months, many Pakistani Islamist organizations have been openly seen raising funds for jihad in Palestine, and supporting Hamas, which along with the United States, several countries have listed as a terrorist organization.
Furthermore, Pakistan may also face pressure from the IMF because of its involvement with proliferation of weapons of mass destruction. Last Friday, the US state department sanctioned three China-based companies and one Belarussian company for supplying items that are needed for ballistic missiles to Pakistan for its ballistic missile programme, including its long-range missile programme. The sanctions were imposed on the following companies: China’s Xi’an Longde Technology Development, Tianjin Creative Source International Trade and Granpect Co. Ltd and Belarus’ Minsk Wheel Tractor Plant.
Owing to such issues, no wonder Finance Minister Muhammad Aurangzeb is in Washington to lobby for a larger, three-year Fund programme of $6bn-8bn to support planned economic reforms.
Mr Aurangzeb is discussing a new programme at a time when global creditors like the Asian Development Bank are repeatedly warning that Pakistan will continue to face challenges from substantial new external financing requirements and the rollover of old debt, exacerbated by difficult global financial conditions.Pakistan’s desperation to close a new deal with the IMF is reflective of the perilous state of its economy. In its April 2024 Asian Development Outlook report, the ADB describes Pakistan’s economic prospects as uncertain, with high risks on account of the impact of political uncertainty on the sustainability of stabilization and reform efforts. As per the ADB report: “With Pakistan’s large external financing requirements and weak external buffers, disbursement from multilateral and bilateral partners remains crucial.”
Will Pakistan be successful in negotiating another deal with the IMF? It is what the country needs, but is it willing to commit to positive change? The question remains.