Why Does Pakistan Need to Go to IMF Now?

In Blog, Economic Security, National Security
August 24, 2022
Moeen Zafar
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If the IMF agrees to the Staff Base Agreement, it would release $1.2 billion additional with the total amount at $7 billion. Release of the grant is, however, subject to approval from the executive branch. IMF contends Pakistan for not complying with its policies, for instance violating the agreement by decreasing fuel, gas and electricity

If the IMF agrees to the Staff Base Agreement, it would release $1.2 billion additional with the total amount at $7 billion. Release of the grant is, however, subject to approval from the executive branch. IMF contends Pakistan for not complying with its policies, for instance violating the agreement by decreasing fuel, gas and electricity prices. These issues create more hurdles for Pakistan when sanctioning new loans from IMF. Pakistan needs to tread carefully because it is not in a position to upset the IMF program as of now. IMF had raised serious concerns regarding the bailout package during the previous government.

Pakistan is in a severe economic crisis and the bailout package is very essential for economic revival. The devaluation of the Rupee, political instability, and rising inflation are the core concerns that are being faced by Pakistan currently. The pressure on the federal government both by rival political parties and by the public is being mounted with each passing day.

IMF deal is important to restore Foreign Direct Investment (FDI). Foreign investors have firm confidence in international institutions, especially in IMF. If IMF agrees on lending long and short-term bailouts, then investors would more likely be investing in Pakistan. IMF is considered a monetary guarantee worldwide. Hence, if the IMF believes and lends money, the chances of foreign investment will increase. The country’s balance of payment and surplus condition will also improve due to this IMF deal.

Friendly countries will also extend assistance to Pakistan, especially the Gulf States. After the news of IMF agreeing to lend $6 billion with an additional $1.2 Billion, doors to positive news opened. The rupee gained against the dollar, and the pressure eased a bit after the IMF deal. Islamabad got the assurance of $4 billion from friendly countries, and most recently UAE pledged $1 billion in different sectors. This will also help improve investor confidence from within and outside Pakistan. Moreover, the Pakistan stock exchange showed signs of improvement as the IMF and foreign investment opened.

The delay in the IMF program in February cost $17 billion in foreign reserves. This deal will bring down the current account deficit. The IMF programme is not only important for the stability of Pakistan but also for the survival of the current government. PML N lost their mandate in Punjab and now they have a thin majority in federal. They have no time to make more mistakes, and of course, the very first challenge for the federal government is to provide relief to the public.

The federal government is in a situation where they have to make some difficult decisions as Pakistan needed this IMF deal. It would impact its popularity because prices would rise. IMF deal would provide the chance for the current government to take the credit if they can stabilize the economy. Second important point is that due to the IMF deal the foreign investment will be back in the country and the rupee will gain its strength. If PMLN can achieve this, they will have some performance to show to the public when they go into the upcoming general elections.

So what does Pakistan needs to do to maintain this IMF program? Political stability is the most important thing. During the tenure of the previous government, the IMF program was delayed due to political uncertainty and a change of government in April and still, domestic politics make things more difficult for the federal government to achieve economic stability. Domestic politics creates more hurdles. The economy requires political stability first and if it is not there, then there is little chance of putting it back on track.