ISLAMABAD: Pakistan is preparing for a phase of “transitional pain” following the International Monetary Fund’s (IMF) approval of a new $7 billion relief package aimed at supporting the country’s struggling economy.
Despite signs of stabilization after narrowly avoiding default last year, Pakistan’s economy remains heavily reliant on IMF bailouts and financial assistance from allied nations to service its significant debt, which consumes nearly half of its annual revenue.
Finance Minister Muhammad Aurangzeb acknowledged the challenges ahead, stating, “There will be transitional pain, but if we want this to be our final IMF program, we must implement structural reforms.” His remarks were made during an interview with a local broadcaster.
The IMF announced an immediate disbursement of around $1 billion as part of the three-year loan package. The programme, it emphasized, will require “sound policies and reforms” to promote Pakistan’s efforts to strengthen its economy and lay the groundwork for more sustainable and inclusive growth.
The deal, reached in July, marks Pakistan’s 24th IMF programme since 1958. It comes with conditions including the reduction of power subsidies and broadening the country’s tax base.
During the United Nations General Assembly in New York, Prime Minister Shehbaz Sharif credited the success of the deal to the crucial backing from Saudi Arabia, China, and the UAE. “In the final phase of negotiations, China played a pivotal role, and I am deeply grateful for their support,” he stated.
Pakistan is also negotiating a $12 billion loan restructuring package from bilateral lenders, including $5 billion from Saudi Arabia, $4 billion from China, and $3 billion from the UAE over a three- to five-year period.
Following the IMF announcement, the Pakistan Stock Exchange briefly surged to a record high before retracting later in the day.
Economist Kaiser Bengali expressed a cautious outlook on the deal’s impact, stating that while it would assist in repaying immediate debt, it would do little to alleviate Pakistan’s broader financial struggles. “The only reforms we see are more taxes. There’s been no progress in curbing government expenditures,” he told AFP.
Pakistan, grappling with years of political and economic instability, ended 2023 with a total debt exceeding $250 billion, accounting for 74 percent of its GDP, according to IMF figures. Of this, 40 percent is owed to external creditors, with China holding the largest share at $30 billion, followed by the World Bank at over $20 billion.
The country’s financial crisis escalated last year due to devastating floods, political upheaval, and years of economic mismanagement. With external help from friendly nations and a last-minute IMF package, Pakistan narrowly avoided default.
However, unlocking the current loan required protracted negotiations with the IMF, which insisted on reforms including energy sector restructuring and increasing tax revenues. Despite having over 240 million citizens, only 5.2 million Pakistanis filed income tax returns in 2022, highlighting the country’s long-standing struggle to expand its tax base.
