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.