The International Monetary Fund (IMF) has expressed concerns regarding delays in governmental reforms in Pakistan. On Friday, it highlighted that high political uncertainty and resurgent social tensions could impair economic stabilization efforts.
In reviewing the $3 billion Stand-by Arrangement (SBA), the IMF recognized Pakistan’s progress in achieving initial targets. However, it pointed out significant risks due to ongoing political instability and substantial external financing needs.
“Political uncertainty poses a major challenge despite the government’s commitment to SBA policies,” the IMF noted.
Fiscal and external vulnerabilities remain significant concerns for Pakistan, with critical issues around debt sustainability and refinancing risks. The IMF emphasized the need for strong policy execution to restore external viability and ensure repayment capacities.
Risks associated with credit concentration, repayment abilities, sociopolitical tensions, and security were also identified.
According to the IMF, substantial debt-service obligations and current account imbalances require further policy adjustments.
Reform implementation has slowed, with delayed initiatives like the retailer registration scheme for tax obligations. This scheme’s launch, originally set for January 1, 2024, has been postponed, with only 637 retailers registered by May 8.
Plans to make the Federal Board of Revenue (FBR) semi-autonomous are delayed pending final reforms by an international consulting firm. The government has engaged Mackenzie for three years for $4.2 million, funded by the Bill and Melinda Gates Foundation.
Debt Risks
Debt sustainability remains a pressing issue, with the IMF warning that policy lapses could threaten financial stability and exchange rate pressures.
Pakistan’s gross reserves stand at approximately $8 billion, bolstered by the State Bank of Pakistan’s (SBP) purchase of $5 to $5.5 billion from the open market.
The IMF has reduced Pakistan’s current account deficit projection to $3 billion for this fiscal year, a reduction of over $3 billion from initial forecasts.
The IMF advised against import restrictions, recommending that the exchange rate buffer economic shocks without artificial constraints on the current account.
The IMF added that fiscal tightening and structural reforms are needed to improve productivity and competitiveness.
Finally, the IMF stressed transparency in the Special Investment Facilitation Council’s (SIFC) operations, urging the integration of projects under Pakistan’s existing public investment framework to ensure accountability and transparency.
