Pakistan plans to seek a new loan of $6 billion from the International Monetary Fund under its Extended Fund Facility, for three years. The Dawn reports quoting Bloomberg that talks with the IMF are expected to take place next month or in April once the review of the $3 billion standby arrangement is completed. This helped Pakistan avert a default.
However, despite the IMF programme, Pakistan’s other creditors, multilateral, bilateral and commercial have been reluctant to help shore up shrinking foreign exchange reserves and improve its external sector outlook. Their reluctance, says Dawn, stems from the fact that only $6.3 billion in foreign loans has materialised against the target of $17.6 billion.
It seems foreign creditors are waiting for a larger and longer between Islamabad and the IMF for medium to long-term reform policy clarity under the new government. Moody’s and Fitch recently warned a larger IMF package is crucial to Pakistan’s longer-term economic stability and to ensure other foreign inflows the country’s annual financing gap of $22 billion to $25 billion for some years.
The IMF has indicated it is ready to help the government address the country’s financing challenges, but it’s not clear if the authorities have started working towards it. To meet IMF goals, the previous government had to impose additional taxes on corporate and salaried individuals, cut public spending, increase energy rates etc.
But along with the curbs on the outflow of the dollar, it has caused the economy to contract and kept price inflation up, making life difficult for low to middle-income households.
Dawn reports that the government may not have much room for manoeuvre given the nation’s vulnerable external position and the need to secure financing from bilateral and multilateral partners. This would help stabilise the economy and enable the country to avoid defaulting on its debt. The new government will have some difficult decisions to take when it assumes office.
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