With the International Monetary Fund (IMF) further delaying the revival of Pakistan’s $6.5 billion bailout program, the nation is now exploring alternative options to prevent a full-fledged balance of payment crisis. The cash-strapped country, home to over 220 million people, may turn to China for assistance in rescuing its ailing economy.
Sources revealed that amidst the deepening political and economic crisis, the IMF has adopted a wait-and-see approach, which is deemed unsustainable for an extended period. The sources emphasized that either the IMF program needs to be revived through the completion of the ninth review or abandoned altogether. They asserted that Pakistan would not share any further data with the IMF until the ninth review is completed.
Reports indicate that Pakistan has already informed the Fund staff that the review must be concluded; otherwise, the budgetary framework for 2023-24 will not be shared. The sources recounted an incident where a Western ambassador, inquiring about Pakistan’s economic meltdown, was assured by the minister that the country would never default.
Furthermore, the diplomatic community has begun showing interest in Pakistan’s domestic political affairs, adding to the growing concerns. In light of these developments, independent economists are now suggesting that the government make last-ditch efforts to revive the IMF programme or turn to China for a bailout to alleviate the struggling economy.
Renowned economist Dr Hafiz A Pasha, a former finance minister, emphasized that if the IMF fails to progress, Pakistan will have no choice but to seek China’s assistance in formulating a mechanism to prevent a severe crisis. He proposed utilizing the Asian Infrastructure Investment Bank (AIIB) to aid Pakistan, even though it falls outside the AIIB’s mandate. Dr Pasha suggested the establishment of an institution similar to an Asian IMF to address the issue.
Dr Khaqan Najeeb, a former finance ministry adviser, acknowledged Pakistan’s efforts for macro stabilization and completing the ninth review. However, given the weak position of the State Bank of Pakistan reserves at just $4.38 billion and a precarious balance of payment situation, the IMF is proceeding with caution to ensure sufficient financing. Despite authorities’ attempts, they have been unable to convince the lender in this regard.
Dr Najeeb also highlighted the decline in imports and emphasized the IMF’s desire for Pakistan to build reserves and ease administrative restrictions. In April, Pakistan’s imports were halved compared to the previous year, amounting to just $2.9 billion according to the Pakistan Bureau of Statistics. Najeeb stated that a staff-level agreement with the IMF could facilitate commercial and multilateral inflows, suggesting that Pakistani authorities should work towards a robust financing plan.
In the absence of an agreement, Pakistan would be compelled to continue with restrictive import measures, leading to a stagnant economy and increased reliance on borrowing and rollovers from friendly countries and other available sources. Dr Najeeb concluded that this is not the preferred path for Pakistan, as it would constrain the economy further.
