The Shehbaz Sharif government’s economic and financial policies that widened the trust gap between Islamabad and the lender and pushed the country towards the abyss in the previous nine months are damningly indicted in THE IMF’s staff report on its new, $3 billion short-term bailout loan for Pakistan.
Due to blunders in policy and violations of the previous Extended Fund Facility programme, the lender was forced to stop disbursing money, thus blocking other multilateral and bilateral loans.
The program’s objectives are also outlined in the IMF document, many of which, like higher energy prices, will directly impact the populace. It holds the finance ministry and State Bank accountable for their repeated manipulation of the market-based exchange rate system, which encouraged the creation of a sizable black market for foreign exchange. It also criticisms the central bank for delaying an appropriate rate increase.
Not only that. According to the report, the government failed to uphold fiscal responsibility, reduce non-essential spending, widen the tax base, rein in the causes of the circular debt in the electricity sector, and enhance SOE governance. The IMF has cautioned that the continuation of the new programme will depend on the implementation of fiscal restraint, a return to an exchange rate set by the market, the smooth operation of the foreign exchange market, a strict monetary policy aimed at disinflation, and progress on structural reforms, particularly with regard to the energy sector, SOEs, and climate resilience.
The paper also issues a warning regarding the “exceptionally high” downside risks to the Stand-by Arrangement’s objectives that could result from a heated political climate and probable policy divergence. These dangers could imperil the program’s implementation, threaten macro-financial and external stability, and threaten the sustainability of Pakistan’s debt, forcing Pakistan to seek a restructure of its foreign debt. Furthermore, it states that given the low buffers, delays in the delivery of external finance from bilateral creditors and IFIs would imperil the precarious external balance. The budget is still under stress as a result of the effects of Russia’s invasion of Ukraine, including increasing food and fuel prices as well as tighter global financial circumstances.
It emphasizes that multilateral and bilateral help would continue to be crucial for Pakistan beyond the impending elections and the SBA by highlighting the countries significant gross finance needs of $28.3 billion throughout this fiscal year, including the $6.4 billion current account deficit.
It seems inevitable that the following administration will require another, longer-term IMF plan to address structural issues and pay off significant external debt obligations over the coming years. To make that happen,
