IMF Not Being Fair To Pakistan: Foreign Minister Bilawal Bhutto

The International Monetary Fund (IMF), according to Pakistan’s Foreign Minister Bilawal Bhutto Zardari, is “not being fair” to Pakistan because the nation is experiencing severe challenges. Bilawal Bhutto stated that Pakistan was experiencing an economic crisis, the effects of last year’s disastrous flooding, and terrorism that was “once again rearing its ugly head” in an interview with the Associated Press on Friday, according to Daily Pakistan.

The foreign minister criticized the IMF for delaying the loan package. He claimed that the PPP supported increasing revenue collection and thought that wealthy people should pay more. He claimed that structural tax reform had not been successful in Pakistan. The nation is also hosting 100,000 new migrants as a result of the West’s withdrawal from Afghanistan, and claims that the IMF is “not being fair” to it.

He added that the IMF was prolonging negotiations at a time when the nation urgently needed funding to assist the “poorest of the poor”. He added that Pakistan and China had a “very good economic relationship” that was “also under the spotlight as a result of geopolitical circumstances”. Cash-strapped According to Daily Pakistan, Pakistan is rushing to take action to achieve a deal with the IMF.

The Whole IMF Story

The conclusion of the ninth review of a USD 7 billion loan program, which has been postponed since late last year, must be agreed upon with the IMF to release funds from friendly nations as well as allow for the disbursement of USD 1.2 billion.
The lender’s requirements are designed to make sure Pakistan reduces its fiscal deficit before presenting its annual budget in June. Finally, the IMF has demanded that Pakistan provide assurances that the balance of payments deficit will be completely covered throughout the remainder of the IMF program.

The most important question for Pakistan right now is whether it could accept the rescue package of the International Monetary Fund (IMF) or not, as political unrest intensifies and the country’s economic situation continues to deteriorate.
Although the crisis-stricken nation has accomplished a significant portion of IMF conditionality, issues still exist about the necessity for external finance. And given that time is running out on a USD 6.5 billion IMF rescue accord, this is crucial for the release of USD 1.1 billion.

The bailout comes to an end on June 30, 2023, the end of this fiscal year. Contrary to popular belief, the IMF’s Resident Representative Esher Perez told Reuters that “All IMF program reviews require firm and credible assurance that there is sufficient financing to ensure that the borrowing member’s balance of payments is fully financed over the remainder of the program”. For Pakistan to receive the next installment of the IMF bailout package, it must act quickly to secure full funding for its balance of payments deficit for the fiscal year 2022–2023.

Since the beginning of last month, the IMF has been in talks with Islamabad to resolve its ninth review, but Pakistan is finding that the IMF’s conditions are not only challenging to meet but also divisive politically. Notwithstanding this, Islamabad has agreed to the IMF’s conditionality since the country is on the edge of defaulting and becoming bankrupt. To satisfy IMF requirements for delivering the bailout package, Pakistan is implementing several steps, including raising GST and excise levies, reducing subsidies, adjusting energy costs, and artificially depressing the currency rate. But the average citizen of the nation is suffering greatly as a result of these policies.

First, a new tax on electricity consumers, including farmers, was approved in the Islamabad supplementary budget, which was revealed on February 15. This tax will raise an additional PKR 170 billion in income to satisfy IMF conditionality. Together with the Kissan package, it also approved ending electricity tariff subsidies to zero-rated companies with effect from March 1 to satisfy other previous action requirements by the IMF. Second, it increased the cost of gasoline and high-speed diesel, which placed a financial strain on those who are already struggling with ever-rising inflation.

Pakistan’s Economic Crisis

The Pakistani economy has been experiencing a crisis since 2022–2023. It has created significant economic difficulties for months, which has led to an increase in the cost of food, gas, and gasoline. Fuel costs have increased globally as a result of the Ukrainian War. Over the years, the nation’s excessive external borrowings increased the risk of default, which devalued the currency and made imports relatively more expensive. By June 2022, food prices had increased and inflation had reached an all-time high.

Low productivity per capita compared to other low- to middle-income developing nations has been caused by weak governance and resulting in a balance of payments crisis, when the nation is unable to produce enough foreign currency to pay for the imports it consumes.

The chief executive officer of Habib Bank, the biggest bank in Pakistan, makes a public statement about the state of the economy for the first time in January 2023.
A “huge hit to the economy,” he warned, may result from the stakeholders’ failure to act quickly and wisely.

When Pakistan removed the fictitious currency ceiling in late January, the rupee fell 20% against the dollar in a matter of days. The government increased the cost of fuel by 16%. In addition, the Pakistani central bank increased its interest rate by 100 basis points to combat the nation’s anticipated 26% inflation rate in January, which would be the highest level in decades. The economy of Pakistan is in danger of failing. A Moody economist estimated that Pakistan’s inflation could average 33% in the first half of 2023 in February 2023.

Pakistan receives a 700 million dollar loan from China to boost foreign exchange reserves. The Consumer Price Index (CPI) for Pakistan increased even more, reaching 31.5%, the highest annual rate in 50 years. Moody’s lowers Pakistan’s rating to Caa3 and changes the outlook from negative to stable in March. China approved a rollover of a $1.3 billion loan for cash-strapped Pakistan, according to Finance Minister Ishaq Dar. This will support Pakistan’s declining foreign exchange reserves.

Influence on industry

The Pakistan Stock Exchange’s top-tier companies, including Pak Suzuki Motors, Millat Tractors, Indus Motors Company, Ghandhara Tyre & Rubber Company, Nishat Chunian, and Fauji Fertilizer Bin Qasim, have also announced the closure of plants.

Global Perception

State media continues to highlight the benefits of the China-Pakistan Economic Corridor, despite Chinese officials blaming the West for Pakistan’s economic crisis. Only China has offered a complete strategy. According to this view, China was the one to offer assistance to Pakistan while the West had ‘abandoned’ the country. Furthermore, Liu Qingbin, a senior researcher at the China Digital Economy Institute, said that if Pakistan wants to be entirely self-sufficient, it cannot just rely on China and must continue to stand up for itself.

About Pakistan’s debt to China, the US has expressed grave worries. “We have been very open about our worries not just here in Pakistan, but everywhere throughout the world about Chinese debt, or debt owing to China,” remarked US State Department Counselor Derek Chollet during his visit to Islamabad on 15 February 2023.

Sushant Sareen, a strategic affairs expert from India, claims that during the past 25 years, Pakistan’s debt has increased around every five years. The debt reached Rs. 62.5 trillion by the conclusion of the Imran Khan administration in 2022, up from Rs. 3.06 trillion at the start of General Musharraf’s rule in 1999. The Economy grew by barely 3% year on average while the debt increased by almost 14% annually. This resulted in an unmanageable debt load. The Rs. 5.2 trillion in debt servicing costs for the fiscal year 2022–23 exceed all federal government revenues combined.

The political conflict between Prime Minister Shahbaz Sharif and his predecessor Imran Khan in 2022, which resulted in Khan’s removal in April 2022, was centered on Pakistan’s economic problems. Khan was forced to resign in a no-confidence vote after Sharif accused him of mismanaging the economy and the nation’s foreign policy. Imran Khan attempted to reach a deal with the IMF in 2019 and agreed to several terms and conditions, which led to a spike in inflation, but Imran Khan was unsuccessful in getting an IMF loan.

Pakistan’s financial situation worsens as its external debt increases by 38%.
The economic crisis in Pakistan is getting worse by the day. The country’s external debt increased significantly by 38% to PKR 20.69 trillion at the end of January 2023 in comparison to the same time last year, according to the most recent report.
According to the report, a significant devaluation of the local currency relative to the US dollar was to blame for the increase in debt.

The local currency saw a 51% loss in value relative to the US dollar, falling to PKR 267.94 at the end of January 2023 from PKR 176.74 at the end of January 2022.
By the end of January 2023, Pakistan’s government’s total debt had increased to PKR 54.94 trillion. By the end of January 2023, the domestic debt had climbed to PKR 34.26 trillion. And the nation’s long-term debt rose to PKR 27.51 trillion.
The debt has also grown to PKR 24.44 trillion from PKR 18.05 trillion over the past year, according to the PC revenue. Whereas loans in foreign currencies increased to PKR 11.3 billion from PKR 7.5 billion.

While being strapped for funds To extend its $2 billion deposits for another year while Pakistan waits for a much-needed $1.1 billion tranche of funds from the international lender, Pakistan has informed the IMF. To get a staff-level agreement with the Washington-based lender, Pakistan’s finance ministry and State Bank of Pakistan (SBP) disclosed their external financing strategy during virtual negotiations with the IMF.

To increase its decreasing foreign exchange reserves to $10 billion by the end of June, Pakistan informed the IMF of its plans. The overall amount of Chinese SAFE deposits was $4 billion, and the remaining ones will eventually mature. In response to the IMF’s request for the release of the $1.1 billion tranches under the $7 billion loan facility, Pakistan informed the Fund about the different safeguards it had put in place. It is recommended that without wasting any more time, both parties go forward with the staff-level agreement (SLA).