On Monday, the IMF authorized the final $1.1 billion loan instalment, concluding the second bailout package in eight years amidst soaring inflation and economic deceleration.
The IMF Executive Board ratified the second review of the $3 billion Stand-By Arrangement (SBA), confirmed by the finance ministry, facilitating the release of this last tranche.
Endorsing Pakistan’s quest for another bailout, the IMF aims to ensure economic stabilization and enhance structural reforms. This approval followed shortly after Prime Minister Shehbaz Sharif described the nation’s debt situation as perilous at the World Economic Forum in Riyadh.
In June 2023, Shehbaz and key Pakistani financial officials secured this agreement in discussions with IMF Managing Director Kristalina Georgieva.
This marks the second completed bailout in eight years. After successfully executing a $6 billion program from 2013-16, Pakistan sought another unsuccessful bailout in 2019.
In July, Pakistan entered a nine-month $3 billion SBA to stabilize the economy. While it managed the current account deficit, the budget deficit surged to an expected 7.4% of GDP, according to the IMF.
The SBA led to increased taxes and significant rises in fuel, gas, and electricity prices. Despite reduced inflation projections, the State Bank of Pakistan lost autonomy and could not lower interest rates.
The IMF should now prioritize economic growth to combat a 40% poverty rate, with 10 million Pakistanis at risk of further impoverishment.
Pakistan assured the IMF of continued adjustments in power and gas tariffs, aiming to avoid debt accumulation in FY24 while safeguarding the vulnerable.
However, electricity and gas price hikes continued under the SBA. Despite commitments to cap circular debt, it exceeded agreed levels, prompting planned reductions through subsidies and tariff increases.
Under the SBA, Pakistan pledged a primary budget surplus of 0.4% of GDP, a target likely missed, according to a recent World Bank report.
Despite the IMF program, inadequate foreign debt inflows forced the central bank to buy over $5 billion from the market to stabilize reserves. Credit rating agencies did not upgrade Pakistan’s ratings, deterring private foreign lenders.
Post-review, the IMF recognized improvements in Pakistan’s economic and financial conditions, attributing it to sound policy management and resumed partner inflows. The government targets a 3.5% GDP growth and 21% inflation for the fiscal year, though actual projections suggest 2% growth and 25% inflation.
A key achievement under the IMF deal was reducing the current account deficit, which was better than expected by limiting imports. Nonetheless, exports lagged, and remittances faced challenges.
Pakistan is considering a successor medium-term EEF program to address fiscal challenges and foster sustainable, inclusive growth.
