Pakistan’s politics seen key to deliver on new IMF aid programme

Name: Pakistan hit by cost-of-living crisis as inflation skyrockets to nearly 40% year-on-year
Uploaded: 2023-07-02T04:30:50.000Z
Duration: 2 min 24 s
Description: Pakistan hit by cost-of-living crisis as inflation skyrockets to nearly 40% year-on-year

The government’s ability to stay on track with reforms will be tested ahead of a coming national election that will need to go smoothly, analysts caution

The fresh IMF support can assuage concerns about Pakistan’s ability to keep making payments and help other investors re-engage with the country

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A boy rides past a paramilitary check post that was set afire by supporters of Pakistan’s former prime minister Imran Khan, during a protest against his arrest, in Karachi in May 2023. Photo: Reuters

Bloomberg

Published: 12:30pm, 2 Jul 2023

Pakistan won vital breathing space from a potential debt default thanks to a draft agreement with the International Monetary Fund (IMF), but political stability will prove key to the South Asian economy in coming months.

The political situation has been volatile in recent weeks, adding to more than a year of upheavals since the ouster of former prime minister Imran Khan in April 2022. Violence erupted across the country in May after the arrest of Khan, who has been facing more than 100 cases ranging from corruption to murder in various courts.

“Everything hinges on whether political stability returns,” Uzair Aqeel, a partner at London-based Nairang Capital, said in the wake of Pakistan clinching a draft agreement with the IMF for a US$3 billion loan programme.

Pakistan’s Prime Minister Shehbaz Sharif (right) and Finance Minister Ishaq Dar in Lahore on June 30 after the signing of a staff-level agreement with the IMF. Photo: AFP

As recently as last August, Islamabad had won IMF staff approval for a US$1.1 billion loan, only to have the bailout programme halted over failure to meet some conditions. Prime Minister Shehbaz Sharif was able to close a new deal after multiple hour-long phone calls and several meetings with IMF Managing Director Kristalina Georgieva.

“Under duress, the government has shown reforms can be initiated – now the question is whether they will stay on track and continue to systematically work through” the issues, Aqeel said.

The nine-month, so-called standby arrangement reached on Thursday will need approval by the IMF executive board, with a vote expected in mid-July.

With some US$23 billion of external debt obligations coming due in the financial year starting July – more than six times the nation’s foreign-exchange reserves – the fresh IMF support can assuage concerns about Pakistan’s ability to keep making payments.

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Pakistan hit by cost-of-living crisis as inflation skyrockets to nearly 40% year-on-year