Pakistan is once again at a critical juncture as it faces a potential delay in securing a crucial loan from the International Monetary Fund (IMF), which could have significant implications for the country’s already fragile economic landscape. The IMF board meeting, which was anticipated to take place in September 2024 to approve Pakistan’s loan program, now seems uncertain. The delay revolves around Pakistan’s ability to arrange incremental financing of $2 billion for the fiscal year 2025 (FY25), and $3 billion for fiscal years 2026 and 2027 (FY26 and FY27), raising concerns about the country’s financial stability and future economic growth.
The delay is particularly worrisome as Pakistan’s ability to secure this financing hinges on the rollover of $12-16 billion in loans from key allies—China, Saudi Arabia, and the UAE. While Pakistan had expected these rollovers to be a straightforward process during the Standby Loan Agreement (SLA) period, the countries are now expressing concerns, leading to uncertainty in the program’s approval. This impasse is casting doubts on Pakistan’s financial roadmap, and without clarity, the country’s ability to stabilize its economy and meet IMF conditions remains precarious.
Pakistan’s Finance Minister Mohammad Aurangzeb has been at the forefront of these discussions, emphasizing the importance of the IMF program in ensuring economic stability. Aurangzeb has expressed confidence in securing the necessary financing and rollovers, but acknowledged that the negotiations are more complicated than initially expected. “We are working closely with our partners, and I am hopeful that these issues will be resolved soon,” Aurangzeb said, underscoring the significance of international cooperation in stabilizing Pakistan’s economy.
The IMF’s primary concern revolves around the financing assurances from these three countries, as the rollover of $12-16 billion in loans is a critical component of Pakistan’s economic program. Without these rollovers, Pakistan would face a significant financing gap, which could derail the country’s efforts to meet IMF targets, including fiscal consolidation, debt management, and foreign exchange reserves.
The IMF officials have echoed this sentiment, noting that the delay in securing these assurances could have broader implications for the program’s overall success. “We are in ongoing discussions with the Pakistani authorities and their international partners. The timely rollover of loans is crucial to the success of the program,” an IMF official stated. The IMF has urged Pakistan to expedite these discussions with China, Saudi Arabia, and the UAE to ensure that the loan program can proceed without further delays.
The economic stakes for Pakistan are immense. The country’s foreign exchange reserves have been depleting rapidly. Its total fiscal deficit stands at Rs 7.283 trillion, representing 5.9% of GDP, down from the revised 7.4% in FY 2023-24 which is barely enough to cover two months of imports. Inflation remains in double digits, with food and fuel prices continuing to soar, putting immense pressure on the average Pakistani. Additionally, the country is grappling with a fiscal deficit of nearly 6% of GDP, making external financing essential for the government to meet its obligations and implement necessary reforms.
The IMF program is crucial for unlocking not only the $3 billion in financing that Pakistan expects from the Fund but also for securing additional funding from multilateral institutions such as the World Bank and the Asian Development Bank. Moreover, the IMF program provides credibility and confidence to international markets, making it easier for Pakistan to tap into global capital markets and secure funding from other bilateral partners.
However, the concerns raised by China, Saudi Arabia, and the UAE complicate matters. China, which has been one of Pakistan’s largest creditors, has expressed reservations about the terms of the rollover, particularly in light of its own financial challenges and its growing investments in Pakistan through the China-Pakistan Economic Corridor (CPEC). Saudi Arabia, while publicly reaffirming its commitment to Pakistan’s economic growth, has been cautious in its financial support, given its own focus on domestic economic reforms under Vision 2030. The UAE, similarly, has been more measured in its approach, raising concerns about Pakistan’s ability to meet its repayment obligations in the long term.
The Saudi ambassador in Islamabad recently reiterated his country’s commitment to Pakistan’s economic growth. “Saudi Arabia has always stood by Pakistan in times of need, and we remain committed to supporting Pakistan’s economic stability,” he said. However, despite these public statements, there are behind-the-scenes concerns about the specifics of the financial commitments and the terms of the loan rollovers.
Pakistan’s efforts to secure the incremental financing of $2 billion for FY25 and $3 billion for FY26 and FY27 are also critical for meeting IMF conditions related to debt sustainability and fiscal discipline. The IMF has made it clear that without these financing commitments, the loan program cannot proceed as planned. This raises the possibility of further delays in the IMF board meeting and, consequently, in the disbursement of much-needed funds to Pakistan.
The delay in the IMF loan approval could have serious consequences for Pakistan’s economy. Without the loan, Pakistan could face a balance of payments crisis, with the risk of default looming large. The country’s foreign exchange reserves are already dangerously low, and any further depletion could lead to a sharp depreciation of the Pakistani rupee, worsening inflation and increasing the cost of imports.
Moreover, the delay could also affect investor confidence in Pakistan, making it more difficult for the country to attract foreign investment and secure funding from other sources. The uncertainty surrounding the IMF program could lead to a sell-off in the stock market and put additional pressure on the government to take drastic measures to stabilize the economy.
In the face of these challenges, the Pakistani government has been trying to reassure both domestic and international stakeholders. Finance Minister Muhammad Aurangzeb has stated that Pakistan is committed to implementing the necessary reforms and meeting the IMF’s conditions. He has also stressed that the government is in close contact with its international partners and is confident that the financing issues will be resolved soon.
“We are in continuous discussions with China, Saudi Arabia, and the UAE, and we are optimistic that these countries will continue to support Pakistan’s economic program,” Aurangzeb said. However, the longer the delay persists, the more difficult it becomes for Pakistan to manage its financial obligations and avoid a potential crisis.
In conclusion, the possible delay in the approval of Pakistan’s IMF loan program is a significant concern for the country’s economic future. While Pakistan has made progress in securing some of the necessary financing, the concerns raised by China, Saudi Arabia, and the UAE regarding the rollover of $12-16 billion in loans have created uncertainty. As the government continues its negotiations with these key partners, the clock is ticking, and the risk of economic instability grows. The coming weeks will be crucial in determining whether Pakistan can secure the financing it needs and avoid a full-blown economic crisis.
The views expressed in this article are the author’s own and do not necessarily reflect Coverpage’s editorial stance
