Pakistan’s Economic Crisis Deepens Amid IMF Bailout Negotiations
Pakistan is in the throes of its worst economic crisis in decades, and the International Monetary Fund (IMF) is giving the cash-strapped country a tough time in ongoing bailout negotiations. Prime Minister Shehbaz Sharif said on Friday (Feb 3) that the government would have to agree to IMF bailout conditions that are “beyond imagination”.
Nathan Porter, the head of the IMF mission, initiated negotiations on January 31 with Ishaq Dar, the Finance Minister of Pakistan, to conduct the ninth review of the USD 7 billion aid package. Pakistan's economic situation has been dire, as it struggles to pay its high levels of external debt while the political situation is chaotic and the security situation deteriorates. Pakistanis are having difficulty affording basic food items as year-on-year inflation has climbed to its highest in 48 years on Wednesday.
The IMF has identified a breach worth PKR 2 trillion in budgetary estimates for the fiscal year 2022-23, warning that the primary and budget deficits could escalate with a massive margin.
This week, foreign exchange reserves decreased once more to US$3.1 billion, an amount which experts declared would be adequate to pay for fewer than three weeks of imports. Concurrently, the rupee is at an unprecedented low in relation to the US dollar.
At Karachi port, thousands of shipping containers are backed up, filled with stock that Pakistan, the world's fifth-largest population, is no longer able to pay for – except for essential food and medicines.
Amid political chaos in Pakistan, the economy is in a slump and former prime minister Imran Khan is exerting pressure on the ruling coalition to call for early elections, as his popularity remains undiminished. In 2019, Khan, who had been removed from his position with a no-confidence motion the previous year, was able to secure a multi-billion-dollar loan package from the IMF.
The Dawn newspaper, according to sources, reported that the IMF mission head asked for decisive steps to cover the huge fiscal gap of between 2 to 2.5 trillion rupees.
On the other hand, as of Friday, Pakistan only had $3.10bn in foreign exchange reserves, enough to pay for imports for only 18 days, leading many to believe that the country must receive the next IMF tranche to avoid a potential default.
The government has refused to raise taxes or cut subsidies, concerned about potential repercussions before the October elections.
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5. “‘Beyond imagination’: Pakistan PM warns of IMF bailout conditions” Al Jazeera English, 3 Feb. 2023, https://www.aljazeera.com/economy/2023/2/3/363
6. “Pakistan ‘to agree' to tough IMF conditions as crisis worsens” CNA, 3 Feb. 2023, https://www.channelnewsasia.com/asia/pakistan-imf-tough-conditions-economic-crisis-bailout-3251896
7. “IMF giving tough time to finance minister, team during talks: PM Shehbaz” DAWN.com, 3 Feb. 2023, https://www.dawn.com/news/1735103
8. “‘Harsh' IMF conditions alarm those at the helm” DAWN.com, 4 Feb. 2023, https://www.dawn.com/news/1735202
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