The International Monetary Fund (IMF) has asked Pakistan to resolve its political disputes before the organisation extends a $6.5 billion bailout package to prevent the country from going bankrupt.
IMF mission chief to Pakistan, Nathan Porter, said, “We take note of the recent political developments, and while we do not comment on domestic politics, we do hope that a peaceful way forward is found in line with the Constitution and [the] rule of law.”
These comments came after PM Shehbaz Sharif failed to convince IMF Managing Director Kristalina Georgieva for immediate financial assistance of $1.1 billion as the nation moves towards an economic disaster.
Porter’s comments come amid mass arrests of former PM Imran Khan’s party Pakistan Tehreek-e-Insaf’s (PTI) members, the government holding political trials in military courts, and a failure to hold provincial elections within the 90 days limit prescribed by the Constitution.
Economic crisis
The IMF bailout is important as, without funds, Pakistan may fall prey to a humanitarian disaster.
The supply chain disruptions during the COVID-19 pandemic triggered the economic meltdown in the country. Its foreign exchange reserve had reached as low as $3.19 billion, an amount good enough to buy only two weeks’ worth of imports. IMF mandates the borrower to maintain at least three months’ reserves. Currently, it has foreign exchange worth only $4 billion.
The IMF’s fiscal assessment shows the budget deficit for 2023-24 will touch 8.3%, which is 4% higher than the projected deficit last year. Pakistan claims the deficit will be around 6.9%.
The government has provided Rs7.5 trillion ($26.25 bn) towards interest payments without any plans for increasing revenues. The IMF reports that the Pakistani rupee has remained relatively stable.
Finance Ministry’s Negotiations
Pakistan’s Finance Ministry has been negotiating with IMF officials about a $1.1 billion package for the past four months. The IMF authorities have asked for currency market reforms, rearranging foreign loans, a functional foreign exchange market, passing of the 2024 budget in line with the IMF program agenda, and adequate provision of fund flow as prerequisites for resumption of the bailout. According to The Express Tribune, Pakistan has not complied with any of these requirements.
The officials could not convince IMF staff members, leading to PM Sharif contacting Georgieva for a solution. However, the IMF has now asked Pakistan to resolve the domestic political crisis — an informal condition to push ahead with the lending deal.
Appeal for Help
Meanwhile, after the talks with Georgieva, the Pakistani PM has asked the finance ministry to share the 2024 budget papers with the IMF. Prior to the intervention by the PM, Finance Minister Ishaq Dar lambasted the IMF on a local TV channel for putting out conditionalities. “We are at a point where it would be extremely biased and shameful for them [IMF] if the 9th review doesn’t take place now,” Dar said.
Despite strong words coming from both parties, the IMF and Pakistan’s government remain hopeful of a deal. On the one hand, Porter said, “The IMF staff continues engagement with the Pakistani authorities to pave the way for a board meeting before the current program expires in end-June.”
On the other hand, Pakistan hopes that the IMF releases $1.1 billion as promised before the end of June.“Our understanding is that the IMF would complete the 9th review,” Dar said.
Ensure Political Stability Before Resuming Bailout Talks: IMF to Pakistan
The comments were made after PM Shehbaz Sharif failed to convince IMF Managing Director Kristalina Georgieva for immediate financial assistance of $1.1 billion
May 31, 2023
IMAGE SOURCE: IMFThe IMF Board of Governors meeting gets underway in 2017