Toxic Relationships: Pakistan, IMF Should Opt For An Exit Program And Move On

Finance Minister Muhammad Aurangzeb’s current negotiations with the International Monetary Fund (IMF) have evoked mixed reactions from commentators – one that of relief contingent on harsh conditions of the Fund and second that of fear that the country is not ready to be free of this debt-driven oppression.

Even if Pakistan manages to get a minimum 3-year loan program next month, it will only offer temporary relief– it will not be sustainable. ProPakistani reached out to a few experts/commentators who said the country should opt for an exit program from the IMF and move on.

Debt and Privatization

While Pakistan achieved several objectives under the $3 billion stand-by arrangement released by IMF  last year, the sacrifices made by ordinary citizens to meet these conditions shouldn’t be overlooked. A market reviewer opined that without IMF assistance, achieving these results would have taken significantly longer, but the debt situation has become worse.

“Again, had there been no bailout from the IMF last year, it would have taken another two more years to achieve the results we have witnessed in the past 12 months. The IMF did help accelerate the process of economic recovery and external sector viability, but the debt spiral continues to worsen,” he added.

Locally, the total public debt stock of the federal government increased by 19 percent YoY in February 2024 to Rs. 64.8 trillion, up roughly by Rs. 10 trillion compared to Rs. 54.4 trillion in February 2023.

Meanwhile, the external debt stock is projected to surge to $130.850 billion by June 2024. Currently, Pakistan’s debt-to-GDP ratio stands at over 70 percent, with interest payments consuming roughly 60 percent of government revenues, marking the worst ratio among major economies in the region.

“Public sector organizations continue to incur huge losses and need to be privatized. The federal government has initiated the process of restructuring state-owned entities and turning them into profitable ventures. Pakistan International Airlines (PIA), Pakistan Steel Mills, and Railways are at the top of the privatization list. The elimination of public sector enterprise losses will result in budgetary savings and lowering fiscal deficit, henceforth curbing the need for involving the IMF for an extended period,” an Islamabad-based policy expert told ProPakistani.

She added that monetary, credit and exchange rate policies will remain flexible and offer low inflationary forecasts with base PKR/$ growth driven mainly by the gradual accumulation of forex reserves. Ongoing talks for a $32 billion investment plan from Saudi authorities may help in this regard. “But count any big Saudi investments out, it’s all PR”, they added.


Aurangzeb could try persuading the IMF to withdraw its 1.25 percent premium on the PKR/$ rate. Since its implementation, the requirement has made dollar inflows complicated. Here’s how:

  • Import orders drive up demand for dollars, pushing interbank rates higher. Traders rush to buy more dollars and this surge in demand surpasses interbank supply, causing the rupee to depreciate. SBP is trying very hard to not let the real value materialize.
  • The excess demand spills into the open market. Speculative activities worsen and as the interbank tries to minimize the spread with the open market rate, it faces challenges and creates a vicious cycle.

Meeting this condition has become a relentless competition and shouldn’t be overlooked.

Taxes and Electricity

An X commentator said the categorization of taxes and power surcharges on various classes of population should be re-examined and the structure altered to reduce the burden on the poor i.e. ensure better distribution of tax burden through upcoming federal budget 2024-25.

Excessive surcharges on electricity, gas and petrol/diesel should be discontinued by improving the governance of distribution companies, bringing in more taxpayers under the income-tax and corporate tax net, reducing widespread evasion, levying higher tax rates on luxury and conspicuous consumption, and plugging in leakages and corruption.

“These measures require institutional strengthening and restructuring for which the IMF financial program is not relevant,” he remarked.

In this analyst’s view, export competitiveness, particularly sourced via IT and textile, should become the new focus of the exchange rate policy so that Pakistan is able to enhance its share in global markets, diversify into new products and develop new areas of competitive advantage. Post-2018 textile growth offers an excellent opportunity for our exporters to capture as much share as possible.

With the IMF-WB Spring meetings nearing conclusion, Finance Minister Aurangzeb and his team must find a middle-ground in getting Pakistan out of the shackles of the lender’s debt and start standing up on its feet as a growing economy.

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