Pakistan teeters on bankruptcy as IMF bailout talks end without deal
- The IMF had been at loggerheads with Islamabad over unlocking the latest tranche of a draft US$6.5 billion package agreed in 2019
- Pakistan’s economy is in dire straits amid soaring inflation and dwindling forex reserves standing at just US$2.9 billion as of last week
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After months of deadlock, the International Monetary Fund arrived last week for last-ditch negotiations with a government fearing the political consequences of enforcing bailout conditions in an election year.
Pakistan’s economy is in dire straits, stricken by a balance of payments crisis as it attempts to service high levels of external debt amid political chaos and deteriorating security.
Inflation has rocketed, the rupee has plummeted and the country can no longer afford imports, causing a severe decline in industry.
“Considerable progress was made during the mission on policy measures to address domestic and external imbalances,” the IMF said in a statement.
“Virtual discussions will continue in the coming days to finalise the implementation details of these policies.”
Prime Minister Shehbaz Sharif previously called the conditions for the US$1.2 billion loan instalment “beyond imagination”.
Finance Minister Ishaq Dar addressed the nation after the IMF team left the country on Friday morning, saying talks had “concluded successfully” and that a draft memorandum on broadly agreed policies had been shared by the lender with the government.
Economic analyst Abid Hasan, a former adviser to the World Bank, said “there will be disappointment in the business community”.
“The only way stability can be achieved is through a deal. This has heightened the uncertainty,” he said.
Analysts have warned that rejecting conditions and pushing Pakistan to the brink risks bankruptcy and default on external loan repayments.
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Pakistan residents struggle to make a living amid soaring fuel prices
The IMF wants the nuclear-armed nation to boost the pitifully low tax base, end tax exemptions for the export sector, and raise artificially low petrol, electricity and gas prices meant to help low-income families.
It is also pushing for Pakistan to keep a sustainable amount of US dollars in the bank through guarantees of further support from friendly nations Saudi Arabia, China and the UAE, as well as the World Bank.
On Thursday, the central bank released fresh data warning its forex reserves had plunged by US$170 million in a week, standing at just US$2.9 billion as of last Friday.
Since January, the world’s fifth most populous nation is no longer issuing letters of credit, except for essential food and medicine, causing a backlog of shipping containers at Karachi port stuffed with stock the country can no longer afford.
Industries have warned the logjam of cargo would increasingly cause factories to shut, having a cascading effect on employment.
After months of holding out, the government finally bowed and loosened controls on the rupee to rein in a rampant black market in US dollars – a step that caused the currency to plunge to a record low – and hiked petrol prices by 16 per cent.
Dar on Friday said petrol prices would rise by roughly four per cent and additional taxes would be imposed, without giving further details.
He also said his government would discuss the fund’s recommendations about energy sector reforms.
Earlier, finance ministry officials said that the government and the IMF were discussing what to do with the energy sector’s almost US$15 billion debt to the government.
They said Pakistan has submitted a plan to cut the debt in phases though price hikes and dividends from gas companies, but the IMF was demanding a clearer path forward.
