Region 
 

Islamabad

Deal or No Deal?

Although economic activity has stabilized to some extent in Pakistan, the outlook remains challenging and rests on implementing the IMF-induced reforms in the short to medium term.

By Asif Javed | April 2024


General elections were held in Pakistan in February 2024, and a new government emerged. After the elections, the International Monetary Fund (IMF) released a vital installment of a bailout loan to Pakistan, and the representative of the global lender stated that the global lender is ready to continue working with the new government.

After this statement, Pakistan’s former prime minister requested the IMF to link the country’s economic aid with an audit conducted by the global lender regarding the transparency of the 2024 General Elections. The issue was raised when Imran Khan wrote a letter to the IMF recently, pointing out the allegations that general elections were rigged massively and stressing that the loan should not be provided before a neutral audit.

The IMF, however, refused to get itself involved in the electoral dispute by stating that the critical concern for the IMF is to bring economic stability and provide financial assistance to the cash-strapped nation. The IMF also made it clear that it usually does not intervene in the countries’ internal political confrontations and limits itself to addressing economic challenges. The move of the PTI chairman came under stern criticism from various fronts as the experts emphasized that such a move may harm the financial stability of Pakistan.

In January 2024, the IMF Executive Board allowed for an immediate disbursement of around $700 million to Pakistan. The IMF is aware that continued timely and consistent implementation of program policies remains critical, requiring strict fiscal targets while protecting social spending, a market-determined exchange rate, and further progress on structural reforms to support stronger and more inclusive growth.
The IMF is prioritizing finalizing a critical Stand-By Arrangement Program with Pakistan and emphasizing that it will send a team for a fresh economic assessment when the new cabinet is formed in Pakistan. The current stand-by arrangement will expire in April 2024. Pakistan has already received $ 1.9 billion under this program.


In 2023, Pakistan barely averted a default on foreign payments when the IMF approved the much-needed $3 billion bailout after months-long discussion rounds with the sitting government. The growing level of debt forced the government in 2023 to request the IMF to restart a financial bailout, which was held previously. In its report on Pakistan (2023), the World Bank also emphasized that increasing debt levels and depleting international reserves are critical risks for the country.

During FY 2023, the economy faced international supply shocks along with internal shocks such as floods in 2022. These shocks intensified the growth vulnerabilities and affected economic stability. The difficult financial situation both at home and with major trading partners restricted the economic recovery. Hence, GDP growth decreased to 0.29% in FY 2023. Sluggish growth was observed in the industrial and services sectors, which gave rise to unemployment in the country. Inflation remained at the highest level in 2023 as the depreciation in currency and surge in energy prices continued to put pressure on every segment of society.

For the financial sustainability of Pakistan, there must be political stability in the country so that internal disputes between different stakeholders do not disrupt the economic recovery. The country faces many financial challenges, such as rising debt levels, hyperinflation, a trade deficit due to low exports and higher imports, and low growth levels. These challenges are posing risks to economic recovery and financial stability.

The government wants a long-term program from the IMF to stabilize the economy, and the focus is to collect tax revenue digitally and transparently for the government’s financial sustainability. Although economic activity stabilized to some extent in Pakistan, the outlook remains challenging and rests on implementing vibrant policies and measures in the short to medium term. The government should minimize operational costs to stabilize the economy and achieve financial stability. The government should adopt policies for an open economy, as existing measures distort the market structure and restrict productivity growth.

Read More