CP Business Editor
Pakistan’s negotiations with the International Monetary Fund (IMF) over its $7 billion Extended Fund Facility (EFF) have yet to result in a staff-level agreement (SLA), despite the Fund acknowledging the country’s progress in implementing economic reforms. The IMF delegation, led by its review mission, engaged in extensive discussions with Pakistani officials, including Finance Minister Senator Muhammad Aurangzeb, to assess compliance with program conditions and evaluate the next tranche of funding. However, the absence of a finalized SLA indicates that key benchmarks remain unmet, leaving Pakistan in a precarious financial position as it grapples with mounting economic challenges.
The EFF, approved in September 2024 for a 37-month period, was designed to stabilize Pakistan’s economy through structural reforms and fiscal discipline. Upon approval, the IMF’s Executive Board authorized an immediate disbursement of Special Drawing Rights (SDR) 760 million, equivalent to approximately $1 billion. However, with $6 billion still pending, further disbursements are contingent on Pakistan’s ability to meet IMF-mandated conditions. These include fiscal consolidation, tax reforms, energy sector improvements, monetary policy adjustments, and structural governance reforms.
Pakistan has made notable progress in several areas. Efforts to expand the tax base have led to improved revenue collection, helping to reduce fiscal imbalances. The State Bank of Pakistan has maintained a cautious approach to monetary policy, keeping the key policy rate at 12% to address inflation concerns and stabilize the currency. Additionally, the government has taken steps to rationalize energy subsidies and improve efficiency in the sector, though challenges such as circular debt and rising costs persist. Despite these advancements, the IMF has not yet approved the next tranche, suggesting that certain economic targets remain unfulfilled.
In an end-of-mission statement, IMF mission chief Nathan Porter acknowledged Pakistan’s efforts, stating, “Programme implementation has been strong, and the discussions have made considerable progress in several areas, including the planned fiscal consolidation to durably reduce public debt, maintenance of sufficiently tight monetary policy to maintain low inflation, acceleration of cost-reducing reforms to improve energy sector viability.” He further noted that “the IMF and the Pakistani authorities made significant progress toward reaching a staff-level agreement (SLA) on the first review under the 37-month Extended Arrangement under the Extended Fund Facility (EFF).” Despite this optimism, the absence of a finalized agreement leaves uncertainty over the timing of the next disbursement.
Pakistan’s economic situation remains dire, requiring financial support beyond the IMF program. The country has sought assistance from key international partners to bolster foreign exchange reserves and meet debt obligations. China has provided significant investments and loans, particularly under the China-Pakistan Economic Corridor (CPEC), which remains a crucial pillar of Pakistan’s economic strategy. The United Arab Emirates (UAE) has extended financial support and made investments in key sectors, while Saudi Arabia has offered financial aid and deferred oil payment arrangements to ease Pakistan’s balance of payments pressures.
Despite these efforts, Pakistan’s global economic standing underscores the urgent need for sustained reforms. The country’s GDP, measured in purchasing power parity (PPP), was estimated at $1.996 trillion in 2024, with projections indicating a rise to $2.06 trillion in 2025. However, Pakistan ranks 25th globally in terms of GDP (PPP), while its real GDP growth rate places it at 190th, highlighting sluggish economic expansion. Additionally, the nation’s GDP per capita ranking of 175th reflects significant income disparities and development challenges. These statistics emphasize Pakistan’s struggle to enhance economic performance and global competitiveness, reinforcing the necessity of continued policy adjustments and structural reforms.
Finance Minister Muhammad Aurangzeb remains optimistic that an agreement with the IMF will soon be reached. He has reassured investors and international lenders of Pakistan’s commitment to meeting reform targets and maintaining economic stability. Aurangzeb has emphasized the government’s efforts to control inflation, strengthen institutions, and improve governance in state-owned enterprises. However, the delay in securing the SLA has fueled concerns about the country’s financial stability and the impact on investor confidence.
Without an SLA, Pakistan faces heightened economic uncertainty. A successful agreement with the IMF would unlock crucial funding, restore investor confidence, and facilitate additional financial support from global institutions and friendly nations. Failure to secure the next tranche could exacerbate existing financial challenges, potentially affecting Pakistan’s credit ratings and increasing borrowing costs on international markets. The government must continue working towards fiscal consolidation, implementing necessary reforms, and maintaining economic stability to navigate these challenges effectively.
Pakistan’s repeated reliance on IMF bailout programs reflects deep-seated structural weaknesses in its economy. While successive governments have implemented short-term fixes, long-term sustainable growth requires broader economic diversification, improved governance, and a reduction in dependency on external borrowing. The current economic crisis highlights the urgency of addressing these systemic issues. The coming weeks will be critical in determining whether Pakistan can secure the IMF’s approval and stabilize its financial future.
The views expressed in this article are the author’s own and do not necessarily reflect Coverpage’s editorial stance.
