Talks between the International Monetary Fund and Pakistan on restarting a $6.5 billion bailout program will continue, according to the IMF which said “considerable progress was made” during the concluded visit.
(Bloomberg) — Talks between the International Monetary Fund and Pakistan on restarting a $6.5 billion bailout program will continue, according to the IMF which said “considerable progress was made” during the concluded visit.
The IMF outlined priorities including strengthening Pakistan’s fiscal position with permanent revenue measures, reducing untargeted subsidies while scaling up social protection, allowing the exchange rate to be market-determined to gradually eliminate the foreign exchange shortage.
“The timely and decisive implementation of these policies along with resolute financial support from official partners are critical for Pakistan to successfully regain macroeconomic stability and advance its sustainable development,” IMF said in a statement.
“Virtual discussions will continue in the coming days to finalize the implementation details of these policies,” it said. IMF also seeks to ensure the viability of the energy sector.
Discussions that have extended from a scheduled end date of Feb. 9 will determine whether the $348 billion economy will secure funds. They’re crucial to unlocking more aid, averting a default and tiding over a country that has less than $3 billion in foreign currency reserves.
Pakistan is hopeful it will reach an agreement with the IMF in negotiations that are in final stages, Finance Minister Ishaq Dar said on Thursday, echoing remarks made by the country’s energy minister. The fresh optimism that boosted bonds on Thursday was in contrast to Prime Minister Shehbaz Sharif’s remarks last week that the Fund is giving the government a “tough time.”
If the IMF talks don’t yield a positive outcome, “it’s like a default situation waiting,” said Emre Akcakmak, a Dubai-based senior consultant to East Capital said before the IMF statement. Pakistan’s reserves are good for only up to two months, given the current burn rates, he added.
Depleted resources have stranded thousands of containers of supplies at ports, pushing inflation to a 48-year high and forcing companies to shut factories from a lack of inventory.
Sharif’s remarks on Feb. 3 that the IMF’s demands were “beyond imagination” shows the dilemma that Pakistan faces. The IMF requires a market-determined exchange rate, higher energy prices and a sustainable fiscal sector — all of which portend more hardship for a country that hasn’t recovered from last year’s devastating floods and endless political turmoil. A suicide bombing last month killed at least 92 people.
Pakistan has a tumultuous track record with the IMF. Most of its previous bailouts — 13 since the late 1980s — weren’t completed. The government secured a $1.1 billion in August, part of a $6.5 billion package agreed upon in 2019. But it has been halted multiple times because of Islamabad’s failure to meet loan conditions and disagreements over spending plans after the flood.
–With assistance from Karthikeyan Sundaram, Kristine Servando, Sanjit Das, Aradhana Aravindan, Ruchi Bhatia, Ismail Dilawar and Kamran Haider.
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