Pakistan intends to apply for a fresh $6 billion loan from the IMF under its three-year Extended Fund Facility, Bloomberg reported last week, citing unidentified officials. Following the conclusion of the final evaluation of the ongoing nine-month $3 billion Stand-by Arrangement, talks with the lender on the new facility are anticipated to start in March or April. The latter agreement, which is about to expire, with the IMF had assisted the nation in avoiding default last summer. Despite the current IMF plan, Pakistan’s other creditors, including multilateral, bilateral, and commercial ones, have so far shown little willingness to assist the country in bolstering its depleting foreign exchange reserves and improving its prognosis for the external sector. The fact that only $6.3 billion in foreign loans, or 35.75 percent of the annual planned objective of $17.6 billion, had materialised in the first seven months of the current fiscal year to January is indicative of their hesitation. However, it was not shocking because international creditors are hoping for a more comprehensive and extended agreement between Islamabad and the Fund in order to clarify medium- to long-term reform policies under the newly elected administration. A larger IMF package is essential to Pakistan’s longer-term economic stability and to unlock more foreign inflows to meet the country’s yearly financial gap of $22–25 billion for a few years, according to recent warnings from Moody’s and Fitch, two of the top three global rating agencies. An IMF official recently stated that the Fund was prepared to assist Pakistan’s post-election administration by way of a new agreement to handle its financial difficulties, should that be requested. However, it is yet unclear if the authorities have begun their due diligence in order to expedite the completion of the agreement with the global lender, which is said to be more stringent than the existing one. In order to satisfy IMF targets under the current loan, the government was forced to accept a plethora of measures to reduce public spending, levy higher taxes on corporations and salaried individuals, hike borrowing costs, increase energy rates, etc. These actions, when combined with the surprise import restriction to stop the dollar’s outflow, have caused the economy to contract and raised prices, making things much harder for those who are already struggling. Furthermore, it’s unclear how far the incoming minority administration will go in order to obtain the IMF funding. But given the country’s precarious external position and its need to secure financing from its multilateral and bilateral partners to stabilise and grow the economy and avoid defaulting on its mounting debt, it is evident as day that it would not have much leeway when dealing with the lender of last resort. It is also obvious that, regardless of the political consequences, the incoming administration will be forced to make tough and unpleasant choices.
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