The Pakistan and IMF talks: What lies ahead?

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The Pakistan and IMF talks: What lies ahead?

  • Staff-level talks b/w Pakistan and IMF concluded under Extended Fund Facility (EFF).
  • IMF team reached an understanding with Pakistan to release $1.17 billion, subject to the board’s approval.

What is Extended Fund Facility (EFF)?

  • Established by IMF
  • Aim: Provide assistance to countries experiencing payment imbalances for correcting structural imbalances over an extended period.
  • EFF was signed by Pakistan to address the medium-term balance of payment problem and increase per capita income.

How important is the IMF support to Pakistan?

  • Fiscal deficit in FY 22 was $18.6 billion.
  • Net public debt at $252 billion, 66.3% of the GDP.
  • Power sector’s circular debt is $14 billion.
  • Current account deficit has peaked to $48.3 billion.
  • 41% of total expenditure will be used in debt servicing.
  • IMF’s support is crucial to address these problems.
  • IMF’s contribution to the total external debt is only $834 million.

Why have the Pakistan-IMF relations remained complicated?

  • During 2008, Pakistan was to implement economic reforms, including improvements in tax administration, removal of tax exemptions as well structural reforms.
  • Successive governments kept domestic polity a priority, rather than economic reforms.
  • To address the structural benchmarks of IMF, authorities have worked on specific legislations.
  • Example: State Bank of Pakistan (SBP) amendment act, and Finance Bill 2022.

What lies ahead for Pakistan and the IMF?

  • Pakistan has to pay $31 billion by 2026.
  • Total public debt as percentage of GDP is expected to increase further.
  • Given IMF’s increased assertion, Pakistan’s political calculations and elections ahead, relationship b/w two is likely to remain complicated.