THE IMF board’s approval of the second tranche of its ongoing $7bn funding arrangement and a new climate resilience fund of $1.4bn for Pakistan weeks before the next budget means that the outstanding issues between the two sides — if any had remained — have been settled for now. While Islamabad will get the second tranche of $1bn immediately, the Resilience and Sustainability Facility will be released over the next 28 months to help reduce Pakistan’s vulnerability to extreme weather events, and enhance macroeconomic stability and fiscal sustainability. The fact that the staff-level agreements on climate funding and the first programme review were reached in March, led to worry regarding the delay in the board’s approval of the SLAs amid growing hostilities with India. It goes without saying that the disbursement of these funds will help stabilise the economy, shore up Pakistan’s international reserves, and guide the country towards long-term recovery. That India chose to abstain from the board meeting after failing to influence and convince the IMF board members to terminate the current financing arrangement for Islamabad underlines the unsavoury reality that New Delhi under Prime Minister Narendra Modi will continue to try and scuttle Pakistan’s journey towards long-term stability.

That said, it is evident from the board’s decision that Indian opposition should be a lesser worry for us than our own propensity to digress from the path of reforms midway. This has repeatedly been emphasised by the IMF while highlighting the risks to the country’s struggling economy. In a statement after the board’s approval, the Fund’s deputy managing director acknowledged that Pakistan had made important progress towards restoring macroeconomic stability despite facing a challenging environment. It added that the risks remain elevated. “Since the approval of the EFF, the economy continues to recover, with inflation sharply lower and external buffers notably stronger. Risks to the outlook remain elevated, however, particularly from global economic policy uncertainty, rising geopolitical tensions, and persistent domestic vulnerabilities [read: potential macroeconomic policy slippages driven by pressures to ease policies].”

Although Pakistan has successfully stabilised macro indicators, the stabilisation is marked by growth stagnation. The IMF has projected the economy to grow at 2.6pc this fiscal year and 3pc the following year. This is not even close to what this country needs to pull its 100m people out of poverty, create jobs for new entrants to the labour force, extend and improve public services, and end reliance on international bailouts to stay afloat. Growing the economy sustainably and at a faster pace of 6-7pc requires unlocking the country’s competitiveness. For that, the policymakers must stick to, rather accelerate, structural reforms focused on strengthening governance to cut barriers to trade and investment. The speed at which Argentina has undertaken governance and economic reforms should be instructive for our policymakers. It has implemented some 672 reforms, scrapped or changed laws and fired tens of thousands of civil servants during the first year of Javier Milei’s presidency to cut down the bloated state. Like Argentina, Pakistan is also in a race against time. But do we have what it takes to shake the country back to life?

Published in Dawn, May 11th, 2025