Pakistan Struggles With IMF Deal Amid Escalating Political Pressures

The current fiscal year’s tax-laden budget and the Supreme Court’s ruling on reserved seats have shifted the focus of politics to the economy, further posing doubts over Pakistan’s ability to meet the new International Monetary Fund (IMF) conditions for a USD 7 billion loan, reported Dawn.

A senior researcher said, “This is crucial to determining if the government can meet the conditions for a USD 7 billion IMF loan agreement. Nonetheless, I am confident the government will sign the deal at any cost.”

According to the analysts, the government is seeking China’s help to restructure its substantial USD 28 billion debt.

However, sources have suggested that China is unlikely to restructure these loans, fearing those other nations, like Sri Lanka, may also seek debt restructuring from Beijing.

Bankers and analysts agreed that the country has been facing significant challenges, with political pressure mounting to provide relief to the public, Dawn reported.

“The government has failed to offer any relief, instead exacerbating the situation by repeatedly increasing fuel and electricity prices,” a senior banker said, noting that only banks and the equity market are enjoying the “worst economy,” recording historic profits.

On the contrary, sectors like textiles are calling for tax reductions and price controls. Exporters are also dissatisfied with the new taxes on their income.

The annual inflation rate for FY24 stood at 23.4 per cent, leaving the real interest rate negative by three per cent.
“How can we expect any big cut in the interest rate in the future to stimulate the economy?” the banker questioned.

The sources said that the IMF has asked the State Bank to maintain fiscal discipline, implying no substantial relief in interest rates soon.

The high cost of doing business has already led to economic contraction in FY23, with a mere 2.4 per cent growth in FY24.

“If the political situation remains unstable, significant growth in FY25 is unlikely, which will increase unemployment and deepen political uncertainties,” noted an analyst. The IMF projects 3.5pc growth for FY25, while Fitch Ratings estimates 3.2 per cent.

Faisal Mamsa, CEO of Tresmark, showed optimism and said that the IMF deal will unlock additional funding sources, stabilize the rupee and bolster foreign exchange reserves.

However, he expressed concerns about the political and social challenges in the country, which could complicate the successful implementation of IMF conditions, as reported by Dawn.

“Moody’s points out that Pakistan has historically struggled with implementing the structural reforms required by IMF programmes, which casts doubt on the current deal’s effectiveness,” he said.

Despite campaigns for deals with Saudi Arabia, UAE and China, no substantial progress has been made, nor has privatization of any government entity gone through, Mamsa said, adding that the anti-poor budget may not be sustainable in the long term.

(WITH INPUTS FROM ANI)