Aurangzeb optimistic about IMF approval for $7 billion bailout

Finance Minister Muhammad Aurangzeb expressed confidence in securing approval from the International Monetary Fund’s (IMF) executive board for a new $7 billion Extended Fund Facility this month, calling it a significant achievement. Sources from the 21st Annual Excellence Awards, hosted by CFA Society Pakistan, noted his optimism around the agreement, contrasting it with those achieved by his predecessors. Aurangzeb intends to disclose details of the agreement following the expected approval on September 25.

The urgent need for the IMF loan is underscored by the fact that debt servicing is projected to exceed $26 billion this year. Jameel Ahmed, Governor, State Bank of Pakistan (SBP), recently indicated that for FY25, Pakistan faces external debt obligations totalling $26.2 billion. Of this, $12.3 billion is expected to be rolled over, while $4 billion in bilateral commercial loans will need to be repaid and refinanced. Thus, the total amount set for rollover or refinancing stands at $16.3 billion.

According to a senior researcher and financial expert, the massive debt repayment places enormous pressure on the economy, and cautioned that the ongoing commercial borrowing at double-digit interest could further strain it in the coming years. Terming the current policies reactive rather than strategic, he suggested operating on quarter-to-quarter basis without advancing long-term solutions.

Moreover, the government has thus far focused on increasing revenue without offering a concrete plan for sustainable economic growth to elevate revenue in the long run. The State Bank’s conservative stance has led to a policy rate of 17.5%, the highest in the region, limiting domestic investments and making it challenging to compete with regional products.

The government aims for a 3.5% economic growth in FY25 with an inflation target of 7%. While experts believe this is attainable, they express concerns over the absence of a strategic plan for the following fiscal year. Both Aurangzeb and the SBP Governor have assured the public that the upcoming $7 billion loan will be the last sought from the IMF.

However, according to Dawn, analysts have questioned the sustainability of such assurances. “All actions seem short-term, leading us back to seek further assistance from the IMF,” remarked a senior analyst, emphasising that the country urgently requires a comprehensive 10-year economic policy to escape the cycle of dependency that has ensued from inadequate governance over the past decade.