The International Monetary Fund’s Executive Board acted as expected and approved the $7 billion Extended Fund Facility for Pakistan, and with the first tranche of Rs 1.1 billion to be issued by the end of the month. It so happened that Prime Minister Shahbaz Sharif was in New York for the UN General Assembly, where the IMF Board met, and promptly praised IMF MD Kristalina Georgieva and her team, and also significantly repeated the pledge which he and his ministers have not tired of making: that this package was the last. The sort of precautions the IMF has been taking have been extraordinary, and have included Pakistan getting rollovers on debt by friendly countries, and even to the extent of getting a fresh commercial loan from a bank, before the case could be put up for consideration. The Karachi Stock Exchange was anticipating this development, raising it by Wednesday to its highest level, going above 82,900 and then falling back to close at around 82,660. The rupee also gained 16 paisas against the dollar.
The path to this package has been long and tortuous, starting with the replacement of the PTI government, which failed to pass the IMF’s review process, with the result that Pakistan had first to obtain a nine-month Stand-By Agreement in 2023. The conditions of that SBA were strenuous enough, and required increases in the power tariffs as well as customs duties, but it proved to be the foundation for the present package. Before approval, the IMF got Pakistan to implement further conditions, such as more tariff increases, as well as an increase in the taxation burden, which has led to a record target of Rs 18 trillion for the FBR, The rollovers by the friendly countries of China, Saudi Arabia and the UAE helped secure this programme, but are going to fall due in the next review of the programme. Pakistan will either have to pay the money, or get another rollover.
Pakistan is well and truly in a debt trap, where it cannot service its domestic debt if it does not borrow, let alone its foreign. The missing component of the IMF programme is any indication of where Pakistan is supposed to earn the foreign exchange it will need to service its foreign debt, which will include in due course the present package. The government made extraordinary efforts to obtain this package, and it will have to make even greater efforts if its is to make good on the pledge to make it the country’s last. There is no time for celebration. Now comes the hard part.
