IMF’s help is not a long-term solution for Pakistan’s fragile economy: Experts

Pakistan has finally secured the approval of $3 billion from the International Monetary Fund (IMF), unlocking the long-awaited lending that could help stabilize the delicate economy of the country, thought in a temporary period. The approval could help ease the nation’s dire need for cash and somehow give a new start for the country to help rescue its economy.

The Executive Board of the (IMF) approved a 9-month Stand-By Arrangement (SBA) for Pakistan for an amount of $3 billion, or “111 percent of quota” to support the authorities’ economic stabilization program, IMF said in a statement.

Indeed, the approval comes at a challenging economic juncture for Pakistan. A difficult external environment, devastating floods, and policy missteps have led to large fiscal and external deficits, rising inflation, and eroded reserve buffers in the fiscal year.

IMF expects the new approval to lead to Pakistan’s economic reform aims to support immediate efforts to stabilize the economy and guard against shocks while creating the space for social and development spending to help the people of Pakistan.

“Steadfast policy implementation will be critical for Pakistan and the success of the program, which requires greater fiscal discipline, a market-determined exchange rate to absorb external pressures, and further progress on reforms related to the energy sector, climate resilience, and the business climate,” the statement added.

Nearly 230 million nations facing acute balance of payment crisis

But experts say that this approval is not a long-time solution for the country where its 230 million nations are facing an acute balance of payments crisis.

The bailout had been frozen since December and the IMF refused to release $1.1 billion of the loan and blamed Pakistani authorities for not complying with the 2019 agreement signed between the IMF and the then Prime Minister Imran Khan.

The hold on the funds was a big headache for the incumbent government and had created fears that the country would default, giving no hope for the country’s economy.

After months of discussion and struggle, finally the ballot has been approved, a Pakistani expert said, but is skeptical the money could solve the longer solution of an economy-starved nation.

In long-term the agreement would fuel further economic crises

“For the time being it may be a relief but in the long-term it would fuel further economic crises in Pakistan,” Shamim Shahid, a Pakistan political expert told Harici.

Inflation in Pakistan touches all time high.

He furthered that “Pakistan’s Non Development and Defense” expenditures are badly affecting its budgetary allocations, developmental and economic sectors.

“Pakistan, if it really wants to end its economic and financial crises, must slash its non development and defense expenditures. With slashing defense expenditures almost all economic crises could be combated and IMF debts may be reimbursed,” Shahid added.

Analysts say that Pakistan needs at least $20 billion in the next two years to pay its foreign loans. The money is included with interest. Meanwhile, the currency value of Pakistan against dollars has dropped significantly.

The currency and inflation is almost out of control, and now all eyes are on the new agreement to at least stabilize the currency and inflation.

Remaining $1.8 billion will be released in two installments

An Islamabad-based writer and expert, Naveed Aman Khan told Harici that at the stage when Pakistan was at the verge of economic collapse the IMF had released $1.2 billion and it is a good sign.

“Remaining $1.8 billion will be released in two installments. By this year Pakistan will have to bear $ 136 billion burden on its shoulders. Last year external loans were $123.57 billion which may reach $152.136 billion by 2027-28,” Khan added.

Khan furthered that foreign reserves are still far beneath country’s level. “China, Saudi Arabia and UAE have extended their cooperation to avoid economic collapse,” he added, calling it a great achievement for the government.

The positive thing is that Pakistan has gone through a number of reforms to meet the demand of the IMF since its mission arrived in the country in February. These changes include revising its 2023-24 budgets. The IMF also demanded the central bank of Pakistan to remain proactive to reduce inflation.

At the same time, reforms in the energy sector which has accumulated $12.58 billion in debt have been a key agenda of the talks between IMF and the Pakistani authorities.

Pakistan’s PM reaction to the agreement

Prime Minister Shehbaz Sharif has welcomed the IMF agreement and said it will help the country improve its economy.

“The approval of the Stand-by Agreement of $3 billion by the IMF’s Executive Board is a major step forward in the government’s efforts to stabilize the economy and achieve macroeconomic stability,” Shehbaz added.

Pakistan primer furthered: “It (agreement) bolsters Pakistan’s economic position to overcome immediate- to medium-term economic challenges, giving the next government the fiscal space to chart the way forward. This milestone, which was achieved against the heaviest of odds and against a seemingly impossible deadline, could not have been possible without excellent team effort,” he added.

Analysts say that the approval of the IMF bailout will also encourage other countries and international financial institutions to help start funding Islamabad to overcome economic challenges.