IMF Raises Concerns Over Pakistan’s Debt Repayment Amid Support Team’s Arrival in Islamabad
The International Monetary Fund (IMF) has voiced apprehensions regarding Pakistan’s ability to repay its debts as a support team from the IMF lands in Islamabad. According to a media report on Saturday, the IMF, headquartered in Washington, expressed significant doubts over Pakistan’s financial capacity to reimburse the global lender amidst major debt repayment challenges.
The IMF’s evaluation of Pakistan’s economic status coincides with the arrival of an IMF support team in the country. This visit follows Islamabad’s request for a fresh bailout package under the Extended Fund Facility (EFF).
Quoting the IMF’s staff report issued earlier this month, Geo News highlighted the precarious nature of Pakistan’s repayment capacity. The report underscored that Pakistan’s ability to repay the IMF is fraught with considerable risks, heavily contingent on policy implementation and timely external financing.
Key risk factors cited in the report include delayed reforms adoption, high public debt, substantial gross financing needs, depleted gross reserves, the State Bank of Pakistan’s net foreign exchange derivative position, declining inflows, and socio-political factors. These risks pose a threat to policy implementation, potentially undermining repayment capacity and debt sustainability.
The IMF stressed the importance of restoring external viability for Pakistan’s repayment capacity, emphasizing the necessity of robust policy implementation, including external asset accumulation and exchange rate flexibility.
The report also flagged geopolitical instability as an additional risk factor, albeit acknowledging a reduction in uncertainty surrounding global financial conditions since the previous review.
According to the IMF, Pakistan is projected to require gross financing of USD 123 billion over the next five years, with anticipated borrowing amounts for each fiscal year outlined. Sources familiar with the matter disclosed that discussions between the IMF support team and Pakistan’s financial authorities will revolve around the initial phase of the forthcoming long-term loan program.
The IMF team’s visit, scheduled for over 10 days, will involve data collection from various departments and deliberations on the upcoming fiscal year 2025 budget with officials from the Ministry of Finance.
In light of the impending IMF review mission, Pakistan has initiated efforts to address its external financing gap by seeking a rollover of approximately USD 12 billion in debt from key allies such as China for the fiscal year 2024-25. This move aims to mitigate the substantial USD 23 billion financing gap.
The federal government aims to achieve budgetary targets before the anticipated arrival of the IMF review mission in Pakistan. Negotiations for a new loan program with the IMF are slated to commence in mid-May, preceding the budget presentation in June.
Despite economic stabilization post the completion of the last IMF program, Pakistan continues to grapple with fiscal challenges. While inflation has declined from its peak last May, hovering around 17 per cent in April, the economy faces a high fiscal shortfall. Import control measures have curbed the external account deficit but have led to stagnant growth, forecasted to be around 2 per cent this year compared to negative growth last year.
