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Pakistan’s relationship with the International Monetary Fund (IMF) since 1958 has been marked by a complex interplay of financial challenges, strategic manoeuvres, and global assistance, profoundly shaping the nation’s economic trajectory over the decades.

Recent data offers a nuanced perspective on Pakistan’s ongoing engagement with the IMF, with significant implications for economic stability. Pakistan ranks fifth in outstanding debt with the IMF, standing at US$7.4 billion, trailing behind Argentina, Egypt, Ukraine and Ecuador.

The journey began in 1958 when Pakistan secured its inaugural IMF bailout of US$25,000. The largest-ever loan of US$7.6 billion which was sought in 2008, under the PPP Yousuf Raza Gilani’s government.

As the IMF Executive Board convened on January 11, 2024 to review Pakistan’s request for additional funds, scrutiny loomed over the final approval for the disbursement of a US$700 million tranche within the ongoing US$3 billion Stand-By Arrangement (SBA).

Examining historical patterns, 2013 emerged as a pivotal phase, witnessing significant disbursements and repayments that marked a turning point in Pakistan’s economic journey. While notable financial aid requests were made in 2001 and 2008, it was 2013 that held far-reaching implications.

Persistent economic hurdles reveal a delicate balance between disbursements, repayments, and interest payments. Strategic repayments in specific years, such as 2009 and 2014, showcase a proactive approach to debt management, highlighting the nation’s commitment to fiscal discipline.

Though specific reform measures are not explicitly outlined, historical transactions imply that IMF engagements significantly shape Pakistan’s economic reform agenda. Ongoing efforts, such as currency stabilisation, inflation management, and structural reforms, reflect consistent interactions with the IMF.

Navigating the delicate balance between IMF support and the long-term goal of reducing external aid reliance poses a nuanced challenge. Substantial purchases in 2022 and 2023 suggest Pakistan may be grappling with economic challenges or pursuing significant development initiatives.

Research indicates serious repercussions of IMF agreements, with rising poverty, unemployment, low growth, and balance of payment problems at the forefront. Critics argue that IMF loans may lead to reckless domestic economic policies, creating long-term dependency. Ongoing debates on IMF conditionalities persist, raising concerns about their impact on economic growth.

Despite temporary respite, experts caution that structural problems leading to past defaults remain unaddressed.
Analysing Pakistan’s borrowing practices, experts warn of living beyond means with little gain. The IMF defends its latest deal, stating it offers Pakistan a policy anchor and a framework for financial support.

Since joining the IMF in 1950, Pakistan has sought IMF bailouts 23 times in 75 years, reflecting the high unpredictability of its economy. Historical events, like the loss of East Pakistan in 1971, led to substantial loans to address economic challenges. The cyclical nature of seeking IMF assistance highlights the intricacies of managing Pakistan’s economic landscape.

As Pakistan’s economic odyssey unfolds, recent data illuminates a nation grappling with challenges, strategically navigating financial engagements, and emphasising stability efforts. The delicate balance between external assistance and long-term economic independence remains a focal point as Pakistan charts a sustainable path forward.

Following the February 2024 elections, Pakistan’s newly elected government is confronted with the critical task of rescheduling its foreign debt payments amidst declining export earnings. With its current outstanding foreign debt estimated at US$124.5 billion or 42 per cent of GDP, Pakistan needs to negotiate with numerous stakeholders, including multilateral institutions, banks, and foreign financial organisations. Pakistan could potentially seek concessions from China, given its contribution to the debt through the Belt and Road Initiative.
Domestic challenges are likely to hinder increased export earnings in 2024. For instance, Pakistan’s main export, textiles, faced setbacks as rising electricity prices forced many producers to shut down workshops, reducing their capacity to produce for export in 2023. Additionally, a crackdown on illegal foreign exchange dealers by the Federal Investigation Agency in 2023 stabilised the official rupee-US$ exchange rate but discouraged expatriate workers from repatriating earnings through formal channels.

With export earnings unlikely to improve, rescheduling foreign debt payments will become an urgent task for Pakistan’s government after the February 2024 elections. The government will need to engage in negotiations with various stakeholders.

Pakistan government has also accumulated new debt that is not on concessional terms, primarily through selling Sukuk (Islamic financial certificates) and Eurobonds. The new debt amounts to US$7.8 billion, likely repayable at varying terms of 5, 10, and 30 years, but with high interest rates.

There are also foreign exchange liabilities resulting from arrangements with banks in Saudi Arabia, the United Arab Emirates, and China’s State Administration of Foreign Exchange (SAFE). In recent years, SAFE has deposited funds into Pakistan’s central bank, along with swaps and Special Drawing Rights allocations, totaling US$11.7 billion.

Of the remaining debt, US$18.1 billion is held by Pakistan’s banks and private enterprises. This leaves US$37.9 billion of external debt held by Pakistan’s government, of which US$6.1 billion is unspecified ‘commercial loans’ and US$26.1 billion is ‘other bilateral loans’.

Not much information is available about the ‘other bilateral loans’, many of which may have been extended by financial institutions in China to finance projects undertaken by Chinese companies in Pakistan as part of the Belt and Road Initiative. These projects have been part of the China–Pakistan Economic Corridor (CPEC) infrastructure program since 2014.

In contrast, AidData identified Pakistan’s cumulative gross debt to China during 2000-2021 as US$67.2 billion, arguing that Pakistan understated its US$45.9 billion worth of cumulative debt to the World Bank.
AidData explains why recipient countries underreport their debt to China. One reason is that the debt reaches a country as foreign direct investment from China, financed as loans to Chinese-owned companies or subsidiary shell companies that build and initially own and operate infrastructure projects in recipient countries.