According to a report by Bloomberg Economics, Pakistan is likely to avert default this year as it secured a last-minute bailout from the International Monetary Fund (IMF). The report states that a staff-level agreement signed with the IMF indicates that aid will finally be received after months of delay.
Ankur Shukla, covering South Asia at Bloomberg, commented, “A last-minute bailout from the IMF should help Pakistan avoid default this year.” However, he also noted that the country’s debt troubles will not end there, as further, IMF aid will be necessary in 2024.
The IMF announced on Friday that its staff and Pakistani authorities have reached an agreement on policies supported by a $3-billion, nine-month Stand-By Arrangement (SBA). The approval of the staff-level agreement is pending review by the IMF Executive Board, with a decision expected by mid-July.
The funding from the IMF is likely to be disbursed in installments to ensure Pakistan’s progress in fiscal consolidation and maintaining a freely traded rupee. Recent efforts by Pakistan to meet IMF demands, including tax increases, budget cuts, and a record hike in the key interest rate, increase the chances of the funding being approved.
In addition, the IMF funding would unlock an additional $3 billion in loans pledged by Saudi Arabia and the UAE. Together, these loans are expected to enable Pakistan to repay its debts until April 2024, assuming the central bank’s projection of a fiscal year current account deficit below $4 billion.
Despite the funding, Pakistan will still face challenges, as it needs to repay $8.7 billion in loans (net of rollovers) in the upcoming fiscal year and cover import bills for the entire year. This means that the government elected after the October elections will have to negotiate a new deal with the IMF.
The report emphasizes that the upcoming government must adhere to the measures agreed with the IMF to secure another program in the following year. It anticipates that the aid will stabilize the economy and boost growth, with a projected GDP growth of 2.5% in the fiscal year starting in July, compared to 0.3% in the previous fiscal year.