Pakistan, which is facing financial difficulties, has requested help from the United States in getting ‘lenient treatment’ from the International Monetary Fund (IMF) due to a delay in finalising a staff-level agreement with the organisation.
Pakistan is currently waiting for a release of $1.1 billion in funding from the International Monetary Fund (IMF), which it urgently requires.
Since Pakistan was unable to persuade the international financial institution, it is now asking for assistance from Washington and its western allies to get more favourable treatment from the IMF.
Pakistan’s economy is currently in a very poor state, with foreign exchange reserves dropping to a dangerously low level of $2.9 billion. At present, the only nation to have financed Islamabad is its ally, China, which has provided $700 million in assistance.
The reports have indicated that despite Pakistani authorities doing everything that they could to the best of their abilities, it may still be challenging to progress without the support of the United States or being called Uncle Sam.
Table of Contents
As per the report, the IMF has asked Pakistan to secure verification of its external financing requirements, which amount to $6 to $7 billion, from Saudi Arabia, the United Arab Emirates (UAE), Qatar, and multilateral creditors. This is necessary to address the funding gap until the conclusion of June 2023.
An IMF official stated that the IMF cannot guarantee the “sustainability” of the loan agreement unless there is full assurance of external financing.
Pakistan’s government official stated on Monday that after the discussions with the State Bank of Pakistan (SBP), the IMF side is optimistic that the agreement will be finalised within the next few days.
The IMF staff proposed changes to the Memorandum of Economic and Financial Policies during a recent meeting and asked for the permanent removal of power sector subsidies.
Pakistan dealing with the crisis
To secure the release of a $1.1 billion tranche from the $7 billion loan facility, Pakistan is undertaking several measures as per the IMF’s instructions. Pakistan has also agreed to increase the policy interest rate by 2%, or 200 basis points, from its current level of 19%.
Pakistan’s economy is in a precarious state, with a significant number of people barely surviving on minimal resources, while the political leadership is unaccountable. Economists predict Pakistan’s future to be worrisome as the country stares at bankruptcy.
Adding to the woes, inflation in Pakistan is 58 years high, which has led to a significant increase of about 50% in food and transportation.
With doubts surrounding the potential for IMF assistance, the Pakistani currency has plummeted to 262 against the US dollar. If Islamabad cracks the deal, it will be the sixth instance of Pakistan receiving aid to help maintain its economy.
Why Pakistan is in a tough situation
Pakistan’s economic crisis has been persistent due to various factors. One major issue is the country’s budget, which is often driven by political considerations which lead to the allocation of funds toward petty expenses rather than infrastructure development.
Pakistan also allocates a significant portion of its budget to defence, which has come under scrutiny due to the country’s reputation for supporting terrorist activities.
Moreover, Pakistan’s dependence on China for investment and infrastructure projects has raised concerns about the country’s autonomy and potential debt traps.
Pakistan can come out of the vicious circle of poverty and debt if it focuses on human resource development, institutional reforms, good governance, and building technology and innovation capacity.
In recent developments, Pakistan was in the news when it did not participate in the Shanghai Cooperation Organization’s chief justice meeting, which occurred in New Delhi, India, between March 10 and 12, 2023.