THE approval of the first performance review under the $3bn Stand-by Arrangement by the IMF’s executive board, which unlocks the second tranche of $700m in critical bailout funds, must help Pakistan somewhat shore up its dwindling foreign exchange reserves, deepen ‘nascent economic stability’, boost confidence of the nation’s foreign creditors, and ease the external debt repayment pressure. In short, it would extend the breathing space the short-term loan has afforded the economy for another few months. Its optimistic view on recent macroeconomic stability expressed in the press release issued after the board’s approval notwithstanding, the Fund has adjusted downwards its GDP growth projections for the present fiscal from the previous 2.5pc to 2pc, saying headline inflation will remain elevated despite dropping to 24pc from the last fiscal year’s reading of above 29pc. The current account deficit forecast has also been revised from 1.8pc to 1.6pc of GDP due to reduction in imports. Likewise, it expects the gross forex reserves to rise to $9.1bn by the end of FY24.

Although the IMF board has reaffirmed that economic activity has stabilised in Pakistan and the macroeconomic conditions have generally improved, it did warn that the “outlook remains challenging, and the continued timely and consistent implementation of program policies remains critical, with no room for slippage”. It also reminded us to keep the promises we have made with the lender to secure its funds, saying Pakistan needs to strictly adhere to the fiscal targets while protecting social spending, ensure a market-determined exchange rate to absorb external shocks, and make progress on structural reforms to support stronger and more inclusive growth to navigate through the ongoing crisis and foster stability. The success of the current IMF programme is also crucial since the country needs to negotiate a bigger and longer funding facility from the lender soon after the new government is formed after the Feb 8 elections for addressing domestic and external balances and secure financing from other multilateral and bilateral partners, as well as commercial creditors in the medium term. The negotiations for the next IMF programme are not going to be easy, and will require the new political set-up to take politically unpopular decisions that successive governments have avoided until now.

Published in Dawn, January 13th, 2024