After months of discussions, Pakistan finally gets a $6 billion bailout from the IMF

• The International Monetary Fund announced yesterday that it had reached an agreement with the government of Pakistan for a three-year loan programme worth $6 billion.
  
• Discussions have been going on for a while. In October 2018, the fund’s managing director, Christine Lagarde, confirmed that an IMF team would be sent to Pakistan to discuss the terms of the bailout.
  
• The last time Pakistan secured a loan package from the IMF was in 2013, when it received $6.7 billion.
  
• The funding amount was expected to be higher this time. However, thanks to billions of dollars worth of loans from China, Saudi Arabia and the UAE in the last few months, Pakistan has been able to plug its external financing shortfall and refinance loans.

The International Monetary Fund announced yesterday that it had reached an agreement with the government of Pakistan for a three-year loan programme worth $6 billion. This is Pakistan’s 13th such bailout programme with the fund to date. It is subject to the approval of the IMF’s Executive Board.

Discussions have been going on for a while. Talks with the IMF began soon after Pakistan’s new Prime Minister Imran Khan came to power last August. Khan inherited an economy weighed down by high inflation, crippling debt levels and dwindling foreign reserves.

In October 2018, the fund’s managing director, Christine Lagarde, confirmed that an IMF team would be sent to Pakistan to discuss the terms of the bailout.

Expectations of the deal were raised last week after Khan appointed Reza Baqir, an economist with the IMF, as the new head of the Pakistan’s central bank.

The deal would have likely been struck a lot sooner if it weren’t for a strained negotiation process. The US had cautioned against the IMF bailout, saying that it should not be used to refinance Chinese projects or pay back loans to China. In fact, the bailout reportedly hinged on the complete disclosure and assessment of Pakistan’s debts under the China-Pakistan Economic Corridor (CPEC).

The last time Pakistan secured a loan package from the IMF was in 2013, when it received $6.7 billion. The funding amount was expected to be higher this time. The International Institute of Finance, a Washington, DC-based think tank, the potential size of a three-year package at $15 billion.

However, thanks to billions of dollars worth of loans from China, Saudi Arabia and the UAE in the last few months, Pakistan has been able to plug its external financing shortfall and refinance loans.

The bailout will likely require the imposition of hard austerity measures such as the welfare spending cuts, reductions in fuel subsidies, another currency devaluation and higher taxes. In fact, Pakistan will have to limit its budget deficit for 2019-2020 to 0.6% of GDP from a current level of 6-7%.

Pakistan has routinely failed previous IMF conditions for loans such as privatisation and deregulation, having only completed the most recent IMF programme.


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