A delegation from the International Monetary Fund (IMF) will visit Pakistan in two to three days to complete the ninth review of Pakistan’s $7 billion Extended Fund Facility, according to Prime Minister Shehbaz Sharif. In the past 30 years, Pakistan has participated in 12 IMF programmes, just two of which have been successfully completed. Both sides blame the other – the IMF for failing to implement promised changes, and our economic officials for the costs being much too high and the benefits a distant illusion. So, why are we now recommending that we comply to IMF requirements and restart the currently halted IMF programme? On the economic front, experts say Pakistan has only two options in 2023: fully implement the IMF programme or default on foreign debt repayments.
In 2019, Pakistan signed up for a $7 billion IMF programme, which was later increased to $6 billion. The ninth evaluation of the programme, which would release $1.18 billion, is still pending. It was previously delayed for two months because the PML-N-led government refused to agree to some requirements put forth by the fund, and the issues still haven’t been resolved. However, Finance Minister Ishaq Dar’s concern with the exchange rate, which he is attempting to keep artificially high by any means necessary, has emerged as the key point of dispute about the release of the 9th IMF tranche. While Dar is focused on keeping the rupee overvalued, the IMF wants the foreign exchange market to determine the value of the Pakistani currency. This fixation has not only put the IMF programme on hold but has also given rise to a parallel illegal market. A thriving illegal market is to blame for the ongoing decline in foreign remittances received from Pakistanis living abroad.
In order to get some breathing room while implementing the IMF programme, the government could try to go for a long-term rollover of its short-term liabilities. The flood of money from friendly nations like China and the Gulf states may lessen pressure for a month or two, but without reforms, things will inevitably return to square one. Therefore, without reforms, increasing borrowing to pay off existing debt is a futile endeavour. Furthermore, even Pakistan’s longtime allies suddenly seem to be concerned of this never-ending cycle of handing out loan after loan. The illegal money flow to Afghanistan has also grown to be a major issue for Pakistan. Before US-led NATO soldiers stayed in Afghanistan, money was moving in the other direction, from Pakistan to Afghanistan. Whether or not the government executes the IMF plans, the working and middle classes will continue to feel the pinch from the economic downturn and record-high inflation. Another factor aggravating the issue is the government’s failure to provide targeted subsidies. The IMF opposes untargeted subsidies that disproportionately favour the wealthy and upper classes at the expense of the underprivileged. No government wants to make the decision to withdraw these untargeted payments.
Nothing is clear yet.