NEW DELHI: International Monetary Fund (IMF) has expressed serious concerns about Pakistan’s ability to repay its debts, particularly to the global lender itself. The IMF’s assessment came as its support team arrived in Pakistan on Friday to discuss a new bailout package under the Extended Fund Facility (EFF), following Islamabad’s request.
The IMF staff report, issued earlier this month, stated that “Pakistan’s capacity to repay the fund is subject to significant risks and remains critically dependent on policy implementation and timely external financing.” The report further highlighted the exceptionally high risks that could jeopardize policy implementation and erode repayment capacity and debt sustainability, including delayed adoption of reforms, high public debt and gross financing needs, low gross reserves, the State Bank of Pakistan’s net FX derivative position, a decline in inflows, and sociopolitical factors.
The report emphasized that restoring external viability is crucial for ensuring Pakistan’s capacity to repay the fund, which depends on strong policy implementation, including external asset accumulation and exchange rate flexibility. Geopolitical instability was also mentioned as an additional source of risk, despite some reduction in uncertainty surrounding global financial conditions since the last review.
According to the IMF, Pakistan requires gross financing of USD 123 billion over the next five years, with the country expected to seek USD 21 billion in fiscal year 2024-25, USD 23 billion in 2025-26, USD 22 billion in 2026-27, USD 29 billion in 2027-28, and USD 28 billion in 2028-29.
Sources familiar with the matter revealed that the IMF support team will discuss the first phase of the next long-term loan programme with Pakistan’s financial team, focusing on data collection from various departments and discussions on the upcoming budget for the fiscal year 2025 (FY2025) with the Ministry of Finance officials. The team is expected to stay in Pakistan for over 10 days.
Pakistan has decided to seek a rollover of around USD 12 billion in debt from key allies like China in the 2024-25 fiscal year to address the USD 23 billion gap in its external financing. The Finance Ministry insiders stated that USD 5 billion from Saudi Arabia, USD 3 billion from the UAE, and USD 4 billion from China will be rolled over, with estimates of further new financing from China to be included in the next financial year’s budget.
The country is expected to receive more than USD 1 billion from the IMF under the fresh loan programme, along with new financing from the World Bank and Asian Development Bank. The federal government aims to achieve budget targets before the anticipated arrival of the IMF review mission in Pakistan, with negotiations for a new loan programme expected to commence in mid-May, ahead of the budget presentation in June.
Despite narrowly avoiding default last summer and experiencing some economic stabilization, Pakistan continues to face high fiscal shortfalls and stagnating growth, with the external account deficit being controlled through import control mechanisms at the expense of economic growth, which is expected to be around 2 per cent this year compared to negative growth last year.
