TODAY'S PAPER | JULY 21, 2023

IMF report
Editorial | Published July 20, 2023 | Updated about 20 hours ago

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THE IMF’s staff report on its new, short-term bailout loan of $3bn for Pakistan is a
damning indictment of the Shehbaz Sharif government’s economic and financial
policies that deepened the trust gap between Islamabad and the lender, and pushed
the country towards the precipice in the last nine months.

Policy missteps and breach of the previous Extended Fund Facility programme had compelled the
lender to halt the disbursement of funds, closing the door on other multilateral and bilateral
financing.

The IMF document, released on Tuesday, also spells out the programme’s goals, many of which,
such as increased energy prices, will directly burden the people. It blames the finance ministry
and State Bank for their frequent tinkering with the market-based exchange rate mechanism,
leading to the growth of a large foreign exchange black market. It is also critical of the central
bank for resisting a timely increase in interest rates.

That is not all. The report points out that the government balked at maintaining fiscal discipline,
cutting non-essential spending, broadening the tax net, controlling the drivers of the power
sector’s circular debt, and improving SOE governance.

RELATED
Pakistan facing ‘exceptionally high’ risks, says IMF

In view of its experience with Pakistani authorities, the IMF has warned that continuation of the
new programme will depend on the implementation of fiscal discipline, a return to a market-
determined exchange rate and proper functioning of the foreign exchange market, a tight
monetary policy aimed at disinflation, and progress on structural reforms, particularly with
regard to the energy sector, SOEs and climate resilience.
The report also cautions against the “exceptionally high” downside risks to the Stand-by
Arrangement goals emanating from a tense political environment and potential deviation from
agreed policies. Such risks could undermine the programme’s implementation, and jeopardise
macro-financial and external stability and debt sustainability, leading Pakistan to seek foreign
debt restructuring.

Additionally, it says that external financing risks remain high, and delays in disbursement of
external financing from IFIs and bilateral creditors would endanger the fragile external balance
given limited buffers. Spillovers from Russia’s invasion of Ukraine through high food and fuel
prices, and tighter global financial conditions continue to put pressure on the budget.

Highlighting Pakistan’s large gross financing needs of $28.3bn, including the $6.4bn current
account deficit, during this fiscal year, it stresses that multilateral and bilateral support will
remain critical for Pakistan beyond the upcoming elections and the SBA.

It is a foregone conclusion that the next government will need another, longer-term IMF
programme to resolve structural challenges and meet high external debt obligations over the next
few years. For that to happen, the country has to achieve the SBA goals, come what may.

Published in Dawn, July 20th, 2023

Read more
Pakistan’s growth to reach 5pc in medium term with sustained
reforms, financial support: IMF

IMF board green-lights long-awaited $3bn loan

Bailout package to provide immediate stability: IMF

On DawnNews

،‫عمران خان نے سیاسی مقاصد کیلئے سائفر کا جھوٹا‬ ‫کیا خطرناک بیماری ڈیمینشیا کا تعلق ہماری عمر سے‬
‫ سابق پرنسپل سیکریٹری اعظم خان‬،‫بے بنیاد بیانیہ بنایا‬ ‫ہے؟‬

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