The International Monetary Fund (IMF) released the last $1.1 billion in funds for Pakistan on August 29, following a combined seventh and eighth review of the country’s extended fund facility.
The $6 billion bailout agreement reached in 2019 subjected the IMF loan to a market-determined exchange rate and the rebuilding of official reserves in order to reduce public debt, ensure fiscal growth, and raise per capita income.
The fund facility, which has been extended until June 2023, is Pakistan’s 23rd IMF program in its 75-year history.
Pakistan ended Fiscal Year 2021-22 with a $17.4 billion current account deficit, which was six times larger than the deficit at the end of the previous fiscal year. This portended the country’s perpetual balance of payment crisis would worsen.
The Pakistani rupee hit an all-time low against the US dollar in July, losing more than a third of its value in the first seven months of 2022.
The State Bank of Pakistan’s (SBP) reserves had fallen to $7.69 billion the weekend before the IMF’s extension of funds last month, the lowest since July 2019, amounting to just over a month’s import cover. August’s inflation rate of 27.26 percent was the highest in 49 years.
The IMF funds, when combined with a commitment to economic reform, pave the way for additional funding.
The Asian Development Bank (ADB), which cut its growth forecast for Pakistan from 4.5 percent in April to 3.5 percent this month, is expected to lend the country $1.5 billion at a 2% interest rate.
Along with the latest IMF tranche, the UAE announced a $1 billion investment, while Saudi Arabia confirmed the extension of its $3 billion deposit with the SBP, and Qatar is set to contribute another $3 billion to the commercial sector.
However, despite the fact that the IMF plan was announced nearly a month ago, Pakistan has yet to receive any of these payments.
Pressure on the country’s depleting reserves continues, pushing the Pakistani rupee back to the all-time low it had recovered from over the previous month.
Despite the sword of default hanging over Pakistan’s economy, the country continues to follow its outdated fiscal playbook by repeating the oft-regurgitated and vicious cycle of IMF bailouts, foreign loans, and partial debt repayment.
“Anyone who takes charge of the government immediately comes to us and asks us to arrange a trip to the U.S. or Saudi Arabia to go looking for loans right away,” Shamshad Ahmed, Pakistan’s former foreign secretary and representative to the United Nations, told The Diplomat.
“I wish the rulers knew the basics of economy: loan is not capital, but a liability. And the loan that IMF gives countries like ours is designed to trap us in endless debt at the behest of the U.S.,” he added.
Similar to accusations of a US-orchestrated IMF “debt trap” for Pakistan, China is frequently accused of the same, albeit from the opposite side.
A whopping 30% of Islamabad’s total debt is owed to Beijing, with the long-stalled China Pakistan Economic Corridor (CPEC) contributing to Pakistan’s fiscal woes via skewed loan agreements. However, foreign powers are not solely to blame for Pakistan’s economic disaster.
“Nobody forces us at gunpoint to seek loans from them. We go to them because of our own failings. The IMF doesn’t ask us to pile up on imports but not focus on exports,” said economist Farrukh Saleem, an economic adviser to the previous Pakistan Tehreek-e-Insaf (PTI) government.
Pakistan ended the previous fiscal year with a massive $48.7 billion trade deficit, a 57 percent increase in a year, with $80.5 billion in imports and $31.8 billion in exports.
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