IMF alters position on bailout, increasing Pakistan’s chances of default: Bloomberg

Picture source - Reuters
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The International Monetary Fund (IMF) criticized Pakistan’s most recent budget, which raises the possibility that the lender would decide against providing long-awaited funding before its bailout program expires at the end of June, according to Bloomberg.

This would greatly increase the likelihood of default, according to Bloomberg economist Ankur Shukla in the report Pakistan Insight. This would result in a severe dollar shortage in the first half of the fiscal year that begins in July and maybe for longer.

Additionally, it would increase the possibility of fiscal 2024 having substantially lower growth, greater inflation, and higher interest rates than what we presently predict.

The budget received criticism from the IMF for not doing enough to increase the revenue base and for containing a tax amnesty.

The government presently has $4 billion in foreign exchange reserves. The reserves will decrease by the end of June without IMF assistance since there is at least $900 million in debt that has to be serviced this month.

Pakistan must make an extra $4 billion in non-rollover repayments between July and December. The research stated that the default “seems highly likely” given that foreign exchange reserves would likely be below $4 billion at the start of the fiscal year in 2024.

“The options for new external funding will probably be very limited without any IMF program.”

It stated that talks with the IMF about any future rescue are not expected to begin until after the October elections. It will take some time to agree. The IMF won’t begin disbursing money under a new scheme until December.

To have any chance of being able to pay its debts in the meantime, the nation will need to preserve dollars by restricting import purchases and maintaining a current account balance in excess.

To avoid a default in the first part of fiscal 2024, it will also need to ask for help from allies.

According to the research, Pakistan’s economy would probably suffer if the IMF doesn’t assist by the end of June.