According to a recent report by Financial Times, Pakistan is planning to seek its biggest ever bailout from the International Monetary Fund. It would be Pakistan’s 13th IMF bailout.
Officials believe that a loan from the IMF is necessary to resolve the country’s escalating foreign reserves crisis.
While talking to the Financial Times one government adviser said:
We are in a rough area and need help. I can’t imagine we could do that without the IMF’s support.
The advisor went on to state that the country would require a loan in the range of $10 to $12 billion, over double the $5.3 billion amount obtained from the IMF in 2013.
However, analysts cautioned that Imran Khan would find it hard to deliver on his promises of spending public money on giving access to health-care for all and expanding the social safety net due to the country’s economic situation.
Pakistan’s foreign currency reserves have declined rapidly in recent months. According to the latest published figures on July 20, the State Bank of Pakistan had just $9bn in reserves, not even enough to cover two months of imports.
So far, Islamabad has kept going with the help of loans from Beijing — it borrowed at least $5bn from Chinese commercial banks in the past financial year — and by allowing the Pakistani Rupee to depreciate 20 percent against the dollar.
Western economists believe that the currency is still overvalued and think it could fall at least another 10 percent.
Many analysts, however, believe a return to the IMF is inevitable and will come with damaging consequences for short-term economic growth and Mr. Khan’s own political reputation.
The analysts say that the fund is likely to demand a range of actions in return for providing a bailout, including raising electricity tariffs, cutting subsidies for the agriculture sector and selling lossmaking public companies.
According to IMF estimates, Pakistan’s fiscal deficit could touch 7 percent compared to a target of 4.1 percent which means it could demand deep cuts in planned public spending.