Pakistan acknowledged on Thursday that it must endure “transitional pain” following the International Monetary Fund’s agreement to a $7 billion relief package to support its struggling economy. Although the nation has stabilised since nearly defaulting last summer, it relies on IMF aid and loans from allied countries to manage its substantial debt, which consumes half of its annual revenues.
Finance Minister Muhammad Aurangzeb told a news agency that structural reforms are necessary to make this the final IMF programme, despite the transitional pain. The IMF announced an “immediate disbursement” of about $1 billion.
IMF Pakistan mission chief Nathan Porter noted that Pakistan experienced a welcome return to economic stability over the past year. The challenge now is to move towards stronger and sustained growth, ensuring benefits are more evenly distributed across society.
#Pakistan inks $7bn IMF bailout with big concessions; challenges lie ahead https://t.co/zLGC17xBXc via @NikkeiAsia
— Farahnaz Ispahani فرحناز (@fispahani) September 27, 2024
In July, Pakistan agreed to its 24th IMF payout since 1958, contingent on unpopular reforms like reducing power subsidies and expanding its tax base. Prime Minister Shehbaz Sharif, speaking at the United Nations General Assembly in New York, credited the deal to the “tremendous support” from Saudi Arabia, China, and the UAE. He expressed gratitude for China’s crucial support during the final negotiation phase.
Last month, Aurangzeb mentioned Pakistan’s negotiation for a $12 billion loan reprofiling from bilateral lenders, including $5 billion from Saudi Arabia, $4 billion from China, and $3 billion from the UAE over three to five years. Porter confirmed that these countries had provided significant financing assurances beyond the existing $12 billion loan commitments.
Following the news, Pakistan’s stock exchange briefly hit a record high before losing ground later in the day. Economist Kaiser Bengali remarked that the deal would help repay immediate debts but wouldn’t address broader economic issues. He emphasised the need for economic reforms beyond increasing taxes, noting the lack of progress in reducing government expenditures.
Pakistan inks $7bn IMF bailout with big concessions; challenges lie ahead https://t.co/f6KWWK8zp3
— Nikkei Asia (@NikkeiAsia) September 27, 2024
At the end of 2023, Pakistan’s total debt exceeded $250 billion, or 74% of its GDP, with 40% owed to external creditors. China and Chinese commercial banks are the largest foreign creditors, holding just under $30 billion, followed by the World Bank with over $20 billion. The country narrowly avoided default last year thanks to loans from friendly nations and an IMF rescue package, amidst political instability, devastating monsoon floods, and a global economic downturn.
Islamabad spent months negotiating with the IMF to unlock the latest loan, which required reforms such as increasing household bills to stabilise the energy sector and improving tax collection. In a country of over 240 million, only 5.2 million filed income tax returns in 2022. The IMF acknowledged Pakistan’s steps towards economic stability but warned that vulnerabilities and structural challenges remain significant, citing a difficult business environment, weak governance, and the state’s large role in the economy as hindrances to investment.
What Other Media Are Saying
- ABC News reports that Pakistan’s $7 billion IMF loan approval phases in $1 billion immediately, aiming to bolster economy over 37 months despite ongoing structural challenges and public opposition to tax hikes.(read more)
- IMF loan offers Pakistan economic relief but challenges long-term reforms, requiring significant political consensus and structural changes for sustainable stability.(read more)
- Times of India reports the IMF’s executive board has approved a $7 billion loan for Pakistan to aid its struggling economy, facilitating much-needed economic reforms and disbursement over 37 months.(read more)
Frequently Asked Questions
Here are some common questions asked about this news
What is the value of the new IMF relief package for Pakistan?
The new IMF relief package for Pakistan is valued at $7 billion.
Why does Pakistan need IMF bailouts and loans?
Pakistan needs IMF bailouts and loans to service its huge debt, which consumes half of its annual revenues.
What are some of the reforms Pakistan agreed to for the IMF deal?
Pakistan agreed to cut back on power subsidies and widen its tax base as part of the IMF deal.
Which countries supported Pakistan in securing the IMF deal?
Saudi Arabia, China, and the United Arab Emirates supported Pakistan in securing the IMF deal.
What is Pakistan’s total debt according to the IMF?
According to the IMF, Pakistan’s total debt is more than $250 billion, or 74 percent of GDP.
