Pakistan may accept tough IMF demands

Pakistan is currently facing a major economic crisis and is in dire need of financial aid from the International Monetary Fund (IMF). An IMF delegation arrived in Pakistan on Tuesday for talks to revive the aid that has been stalled for several months. The Pakistani government has been hesitant to accept the IMF’s demands for tax increases and subsidy reductions, as they fear a public backlash ahead of the elections set to take place in October.

Prime Minister Shehbaz Sharif has recently stated that the government will have to agree to IMF conditions that are “beyond imagination,” as the country is grappling with an escalating economic crisis. The Pakistani economy is currently suffering from a balance of payments crisis, high levels of external debt, political instability, and deteriorating security.

As a result, foreign exchange reserves have dropped to a mere $3.1 billion, which is only enough to cover less than three weeks of imports. The rupee is also at a record low against the US dollar, leading to a backlog of thousands of shipping containers at the Karachi port filled with goods that the country can no longer afford. This is due to the fact that Pakistan is no longer issuing letters of credit, except for essential food and medicine.

Inflation in Pakistan has reached a 48-year high, making it difficult for citizens to afford basic food items. The economy has been affected by years of financial mismanagement, political instability, and natural disasters such as the global energy crisis and the floods that submerged a third of the country.

With the possibility of national bankruptcy looming, the government has started to give in to pressure, leading to the IMF’s last-minute visit. The government has loosened controls on the rupee and raised petrol prices by 16%, but the IMF is demanding further hikes to artificially cheap petrol, electricity, and gas prices.

An analyst, Abid Hasan, has stated that accepting the IMF’s conditions will result in an increase in prices, but Pakistan has no other option. Otherwise, the country could face a situation similar to Sri Lanka and Lebanon. Agreeing to the IMF’s measures will have political consequences for the ruling parties, but so will rejecting them and pushing the country to the brink.

Pakistan had initially agreed to a $6.5 billion loan package with the IMF, with roughly $4 billion paid out so far. Although the next instalment may not induce an economic turnaround on its own, friendly nations that Pakistan usually approaches for help have indicated that they may open their books once the IMF is on board.

The country’s tumbling economy reflects its political chaos, with former Prime Minister Imran Khan pushing for early elections while his popularity remains high. Khan had negotiated a multi-billion-dollar loan package from the IMF in 2019, but reneged on promises to cut subsidies and market interventions, leading to the stall of the programme. This pattern is common in Pakistan, where most people live in rural poverty and over two dozen IMF deals have been brokered and broken over the decades.