IMF Bailout Isn’t Enough: Here’s What Pakistan Needs to Do

The International Monetary Fund (IMF) program may be critical to restoring the confidence of friendly nations to assist Pakistan but is insufficient to meet debt obligations unless they are significantly reprofiled, wrote the Pakistan Business Council (PBC) in its report “Minimum Consensus on Key Economic Reforms”.

Pakistan’s external debt servicing obligation for FY23 is $23 billion, of which $6 billion has been repaid and $4 billion rolled over, leaving $13 billion yet to be funded. There is a further repayment obligation of $75 billion during FY24-26.

Despite a severe import crunch leading to significant unemployment, the current account deficit is running at $7-8 billion and there is a substantial backlog of imports, dividends, and other remittances. Whilst the IMF program is critical to restoring the confidence of friendly nations to assist, in itself, it will not be sufficient to meet debt obligations unless they are significantly reprofiled.

Nor will it provide the space to implement fundamental reforms. Short-term rollovers will not suffice. There are therefore four priorities that need to be worked upon:

• Secure immediate liquidity by expediting/ enhancing the current IMF program by factoring the impact of floods

The report suggests managing the external and fiscal accounts with a positive impact ranging between $15.7-18.9 billion on the former and over Rs. 1 trillion on the latter.

• Buy time for fundamental reforms by reprofiling external debts and by extending the current or negotiating a fresh IMF program.

PBC recommends seeking reprofiling of debt through advice from sovereign debt advisors. Of the $100 billion external debt, $75 billion is payable in FY23-25, which cannot be met by the $3 billion current forex reserves and $5 billion expected from IMF and friendly nations. There is also a $4 billion backlog of imports and dividend remittances to clear and an import-crunched current account deficit of $7-8 billion per annum to be funded.

• Clearly convey the seriousness of the economic crises to the public instead of giving a “business as usual”

The report asks the government to motivate the public to conserve energy through effective communication. The government should lead
by example in conservation and by adopting an austerity program.

• Develop cross-party consensus on at least the key reforms to address the immediate challenges

PBC urges a minimum reforms agenda (with some of the points already mentioned above) to deal with the immediate crisis and to put the country on a sounder base in the medium to longer term for economic stability.

The report urges immediate facilitation in securing, augmenting, and extending IMF support, buying tome for fundamental reforms by reprofiling debt with help from Sovereign Debt Advisors, maintaining a narrow exchange rate spread between interbank and open market, reducing the use of imported fuel for energy, and cutting public expenditure by adopting austerity measures.

In the medium to long term, the report recommends initiatives such as widening the tax base and including untaxed wholesale, retail, and real estate sectors.

The PBC wants authorities to ensure food security, provide security of power supplies at competitive costs, reduce the burden of SOE losses through restructuring and privatization, boost exports by broadening the export bracket and widening reach, optimize businesses through deregulations, digitization, and civil service reforms, and achieve equitable resource distribution by renegotiating the National Finance Award.