Pakistan has been facing a challenging economic situation in recent years due to several factors, such as a widening current account deficit, rising inflation, a depreciating currency, and a high level of public debt. These challenges have been further aggravated by the COVID-19 pandemic.
To mitigate its economic woes, Pakistan has sought financial assistance from various international institutions, including the International Monetary Fund (IMF). Recently, the IMF confirmed that if all the agreed terms were implemented by the Pakistani authorities, the current IMF programme would be completed. Pakistan has also received financial support from friendly countries such as the United Arab Emirates and China. The UAE has pledged $1 billion, while China has provided $300 million from the Industrial and Commercial Bank of China (ICBC) approved facility of $1.3 billion.
Pakistan and the IMF have been in talks to revive the 2019 loan package to avoid a situation where the country’s debt becomes unsustainable. The IMF is discussing ways to provide financial assurances to support Pakistan in completing the programme.
With the central bank reserves falling to critical levels, the IMF’s tranche is crucial as it will also unlock other external financing avenues, helping Pakistan avoid defaulting on its obligations. Pakistan’s dependence on imports to meet its energy needs and a struggling agriculture sector, impacted by climate change, has further complicated its financial situation. Additionally, corruption and inefficiencies in the tax collection system have limited the government’s ability to raise revenue and invest in key sectors of the economy.
The current near-default economic situation in Pakistan highlights the need for effective management of the economy and financial assistance from international institutions to support the country in stabilizing its economy.