The International Monetary Fund (IMF) approved a $3 billion loan programme for Pakistan on Wednesday — which was agreed upon as a previous one expired at the end of June before its completion — securing much-needed funding for the cash-starved nation.
Under the new standby arrangement (SBA), the country will immediately receive around $1.2bn while the remaining funds will be released in two tranches later, after the end of the incumbent government’s tenure.
Several analysts told Dawn.com that the approval of the new programme was a “lifeline” for the country and the soon-to-exit PDM-led government but at the same time pointed out that conditions apply to ensure that the relief was not transient.
“The IMF’s approval of the SBA has provided yet another lifeline to the government, enabling it to improve foreign exchange reserves,” said macroeconomist Ammar Khan, adding that the development also gave the dispensation in Islamabad the “necessary breathing space” to undertake structural reforms.
But, he added, their inability to capitalise on this situation “by undertaking structural reforms and being more fiscally responsible” would evidently result in economic contraction and potential solvency issues in the near term, pushing the country towards an even deeper debt crisis.
Similarly, Sustainable Development Policy Institute Executive Director Sajid Amin termed the IMF’s approval a “big improvement”.
This, he noted, “brings IMF-or-no-IMF uncertainty to an end”.
More importantly, he added, “It has given Pakistan a lifeline to arrange its external financing gap.
“This gives Pakistan access to finances from the international market, multilateral [institutions] such as the Asian Development Bank and Islamic Development Bank, and from friendly countries as all of them had been looking towards IMF” to approve the deal.
But, Amin emphasised, “We must realise that the SBA won’t solve all our problems. Our problems are much older, deep-rooted and structural. The government must use the SBA to show its commitment for reforms.”
He also noted that the under the programme, funds would be issued to three different governments: first to the current PDM ruling coalition, second to the successive caretaker setup and the last one to the new government after elections.
“Any new government will have to go for a new programme with the IMF,” he said, adding that he believed for this reason that conditions of the SBA would be implemented “more seriously” as compared to those of the previous bailout package.
He highlighted that policy reversals, delays in the implementation of agreed policies and political uncertainty and instability had resulted in incomplete IMF programmes in the past, adding that the SBA would come with tougher conditions.
He foresaw sharp energy price hikes and a completely market-driven exchange rate as two of the conditions that the country would need to meet for the completion of the new programme.
But, he added, Pakistan had no other way than to comply with the conditions and secure the IMF funding to steer itself out of the current crisis.
“We need the IMF backing,” he said. And “moving forward, we should not [use] the SBA just to fill the reserve gap. I think this is the time to show our commitment to reforms.”
Uzair Younus, director of the Pakistan Initiative at the Atlantic Council’s South Asia Centre, also said the IMF approval provided Pakistan with a “lifeline” and nine months “during which efforts can be made to sustainably resolve pressing issues facing the economy”.
“It is important now that the successive government take consistent actions that pave the way for a larger IMF programme after elections later this year,” he stressed.
Economist Aqdas Afzal welcomed the IMF approval, saying he believed the funds released under the programme would “go a very long way in providing the much-needed stabilisation to the Pakistani economy, which has suffered very badly because of a classic balance-of-payments crisis, at least since the change of government in April last year”.
Noting that just one tranche under the programme would be issued during the tenure of the current government and the remaining amount would be released to successive setups in Islamabad, he said the PDM government needed to work for political stability now that the economy seemed to be stabilising.
The government, he said, need to “work with the election commission in settling on a date for the next general elections so that the expectations anchored can be provided to the people of Pakistan, [and] so that the economy and politics can again become stable in Pakistan”.