Islamabad, Pakistan – Financially-strapped Pakistan is poised to receive a $1.1 billion loan tranche from the International Monetary Fund (IMF) after a key meeting of the international lender’s board on Monday, even as economists have warned the country needs deep reforms in order to reduce his dependence on financial support abroad.
Late Monday evening, Pakistan’s finance ministry and the IMF confirmed that the lender had agreed to the “immediate disbursement” of a $1.1 billion tranche, completing a total loan of $3 billion made under a deal last year signed agreement was agreed.
But the approval came with clear words from the IMF. “To move Pakistan from stabilization to a strong and sustainable recovery, the authorities must continue their policy and reform efforts, including strict adherence to fiscal targets while protecting the vulnerable; a market-determined exchange rate to cushion external shocks; and expanding structural reforms to support stronger and more inclusive growth,” the organization said in a statement.
The rescue package announced on Monday followed a meeting between Pakistani Prime Minister Shehbaz Sharif and IMF Managing Director Kristalina Georgieva on the sidelines of the World Economic Forum in Riyadh on Sunday.
Sharif’s government had sought a new IMF deal after the current $3 billion standby agreement (SBA) with the global lender expired on April 11.
Pakistan has been suffering from a severe economic crisis for more than two years, with inflation at one point soaring to nearly 38 percent and its foreign reserves depleted to $3 billion in February 2023, enough to cover less than five weeks of imports.
In June last year, Sharif avoided a sovereign default when he secured the IMF bailout, pushing current foreign reserves to nearly $8 billion, according to the latest central bank data.
Khaqan Najeeb, a former finance ministry adviser, told Al Jazeera the performance of Pakistan’s $350 billion economy over the past nine months showed that the country’s meager foreign exchange reserves had increased and that inflation, which peaked in March at 20 percent, has declined, albeit slowly.
“Broadly speaking, we can define Pakistan’s economic situation as macro stabilization, which is a knock-on effect of the adjustment policy, but it also means that growth is expected to remain slow, hovering around 2 percent,” he said.
However, leading Pakistani economist Kaiser Bengali had reservations about the economic outlook, questioning the sustainability of current policies and wanting further structural reforms.
Bengali described the current economic indicators as a “mirage”, adding that the perceived stability was due to the prospect of further loans.
“If the so-called stability was due to an increase in exports or better dollar inflow, that would have made sense, but that is not happening. “What we are seeing now is a temporary situation where the market reacts to daily information,” he said told Al Jazeera.
“The economy cannot function solely through the inflow of credit. How will we pay it all back? [existing] Loans?”
Pakistan’s external debt currently stands at more than $130 billion, with Lahore-based economist Hina Shaikh fearing that the current policy of using more debt to tackle the budget deficit will lead to more inflation.
“Without a commitment to introduce reforms that rationalize spending and widen the tax net to increase tax revenues, not much will change in the macroeconomic situation. Unless more goods are produced and there is real growth – that is, exports are surging, manufacturing is happening, there are productive employment opportunities – inflation will continue to rise,” she told Al Jazeera.
Bengali said recent Pakistani governments have pursued a single agenda of figuring out “where to get new loans to pay off the old loans.”
“Public sector development has fallen by the wayside. “In the last four decades there has hardly been a major health, education or housing project,” he said.
Najeeb, the former government adviser, said the biggest challenge for the country in the coming days is to create a framework that can lead to growth “based on productivity and investment”.
“We must remember that Pakistan already owes them [IMF] $7 billion,” he added.
Bengali concluded with a warning: Even the IMF might shy away from committing large sums of money to help Pakistan out of its financial crisis.
“No bank will give you loans indefinitely, especially if their balance sheet deteriorates,” he said.