Pakistan is facing a major economic crisis, with inflation at a record high and currency reserves at a critical level. The country is in the final stages of an IMF bailout program, but there is only one more review left before the program expires.
In order to secure the final review, the IMF has set a number of conditions for Pakistan to meet. These include restoring the proper functioning of the foreign exchange market, passing a budget that is consistent with the IMF’s program objectives, and securing firm and credible financing commitments to close a $6 billion gap.
The government has made some progress in meeting these conditions. It has removed daily limits on fluctuations in the exchange rate and secured commitments for $4 billion in financing from Saudi Arabia and the United Arab Emirates. However, there is still a lot of work to be done before the IMF review at the end of June.
The government is also facing pressure to increase social spending in order to help the most vulnerable people in the country. However, this will require the government to find ways to increase revenue or cut spending in other areas.
With the general election looming, there is a risk that the government will make populist pre-election promises that will be difficult to keep. This could jeopardize the IMF program and make it even harder for Pakistan to get out of its economic crisis.
The next few weeks will be critical for Pakistan’s economy. The government must make significant progress in meeting the IMF’s conditions in order to secure the final review and avoid a further economic meltdown.
Here are some additional details about the situation:
- The IMF has been providing Pakistan with financial assistance since 2019. The current bailout program, which was worth $6.5 billion, was approved in 2021.
- Pakistan’s economy has been struggling for several years. The country has been hit by a number of factors, including high inflation (37.9% in May), low foreign reserves, and a widening current account deficit.
- The general election is scheduled to be held in 2023. The current government is led by the Pakistan Democratic Movement (PDM).
What does this mean for Pakistan?
The IMF review is a critical juncture for Pakistan’s economy. If the government is able to meet the IMF’s conditions, it will secure the final review and unlock billions of dollars in additional funding. This would help to stabilize the economy and put Pakistan on a path to recovery.
However, if the government is unable to meet the IMF’s conditions, it could face a number of negative consequences. These could include a further economic meltdown, a devaluation of the rupee, and a rise in inflation.
The government has a lot of work to do in the next few weeks. It must make significant progress in meeting the IMF’s conditions in order to secure the final review and avoid a further economic meltdown.
Source: Reuters
