Pakistan’s upcoming discussions with the International Monetary Fund (IMF) later this month will prominently feature the country’s debt burden as it seeks assistance to revitalize its struggling economy.
The initial engagement, anticipated this month, will primarily focus on securing the final tranche of the expiring $3 billion loan package, with subsequent talks aimed at negotiating a new three-year arrangement worth $6 billion.
The IMF expressed its interest in commencing discussions with Pakistan’s new government on both packages in a statement earlier this week.
Upon appointment, the incoming finance minister’s first major international task will involve representing Pakistan at the IMF and World Bank’s annual spring meetings scheduled for next month.
The primary ministerial meetings are slated from April 17 to 19, accompanied by various events throughout the week from April 15 to 20, and Pakistan has conveyed its intention to attend the finance minister leading the delegation.
A notable development this year is India’s appeal to the IMF, urging precautions to prevent Pakistan from diverting loans towards defense expenses, as reported by Indian media.
While India holds a position on the IMF Executive Board, it typically refrains from public comments on Pakistan’s loan packages. The influence of India’s request on the IMF’s decision remains uncertain, but Pakistan’s political stability or instability will undoubtedly shape its negotiating stance with lenders.
Michael Kugelman, a South Asian affairs scholar at the Wilson Center in Washington, highlighted the IMF’s recent emphasis on Pakistan’s political stability, noting its rarity for the institution to publicly comment on domestic politics of funded countries.
Murtaza Haider, a professor at Toronto Metropolitan University, emphasized the urgency for Pakistan’s new administration to secure a more substantial IMF program in light of its challenging economic situation. The current $3 billion IMF package concludes this month, underscoring the need for a larger financial arrangement.
Pakistan grapples with a debt-to-GDP ratio exceeding 70 percent, with domestic debt accounting for a significant portion. External debt, largely in dollars, is primarily owed to bilateral and multilateral creditors, with China holding a substantial share, particularly in infrastructure projects.
The country’s reliance on tax and gas tariff hikes, coupled with currency depreciation, has contributed to a high inflation rate. Economists anticipate continued pressure on the local currency despite expectations for a decrease later in the year.
