Govt bets on IMF, businesses hopeful, public wary

The government is confident, and businesses are hopeful, for the IMF board’s approval of a $7 billion loan programme in September. However, the public shows little interest, and if anything, they fear the IMF’s involvement. For them, these programmes often bring more economic hardship, with any potential gains seeming to bypass them.

Pakistan and the IMF agreed on a 37-month loan facility last month. The key donor, however, noted that the implementation depends on approval from its executive board and “timely confirmation of necessary financing assurances” from the country’s bilateral partners.

Finance Minister Muhammad Aurangzeb has expressed confidence in the country’s ability to secure external financing, particularly in light of the IMF’s $12 billion debt reprofiling requirement for this year as a prerequisite for the board’s approval.

Last month, the government announced that it had initiated the process of rolling over $27 billion in debt and liabilities with key bilateral partners, including Saudi Arabia, China, and the UAE. However, senior officials caution that the rollover process is still a work in progress, particularly for the first year of the three-year loan period.

Members of the government’s economic team remain confident, asserting that the situation is well under control and that the $7 billion loan will be cleared by the IMF board next month. The IMF recently issued a press release commending the government’s efforts, but its website’s schedule for board meetings through 6th September does not mention Pakistan.

Independent analysts are optimistic that the approval will come through, even if there is a slight delay.

The business community places significant importance on the IMF programme for achieving short-term stability and reviving growth thereafter. “It will reduce risk perception and open doors to commercial loans at competitive rates. While we hope for a politically stable government to promote private business, we recognise that political stability will remain elusive as long as doubts persist about Pakistan’s economic viability,” commented a business leader who wished to remain anonymous.

“For investors active in the future markets, perception often outweighs reality, particularly in today’s globally turbulent times. We believe there is significant capital searching for viable investment options, both within and outside Pakistan. We are confident that entering the IMF programme will boost the country’s appeal as an attractive investment destination,” remarked a mutual fund operator.

Experts caution against excessive optimism. “It’s unrealistic to expect a sudden turnaround in the country’s fortunes, with or without the IMF programme. If approved, the IMF credit will, at best, provide some breathing room and buy time for the government to reorient the economy toward better management, productivity, and competitiveness. However, if the government fails, yet again, to implement self-corrective measures, enforce rule-based governance, invest in human capital, curtail unproductive spending, address disparities, curb nepotism, and promote healthy competition, we will find ourselves back at the doorsteps seeking support to survive in three years,” warned an economist.

For ordinary Pakistanis, whose views on economic policies are shaped primarily by their impact on household finances, the IMF is far from popular. Many see the IMF as a malign force that loans money to the government, enabling the rulers to further entrench an exploitative system. To them, the IMF programme means costlier utilities, higher taxes, and job losses. In their eyes, the IMF symbolises hardship — unbearable pressure on their pockets, fewer public sector jobs, and unchecked power for private employers to hire and fire at will while offering lower pay.

If approved by the board, the $7 billion, 37-month Extended Fund Facility (EFF) would mark Pakistan’s 24th IMF programme since the country joined the organisation in 1950. The first loan deal, a one-year Standby Agreement (SBA), was signed in 1958, 11 years after independence. In the first 25 years until 1972, Pakistan sought IMF assistance four times for short-term support (SBAs), with agreements in 1958, 1965, 1968, and 1972. Over the following 25 years, up to 1997, Pakistan approached the IMF 11 times, including for three long-term programmes (EFFs in 1981, 1988, and 1997). Since then, aside from SBAs in 2000 and 2022, the remaining seven programmes, and the one currently under consideration, have been longer-term credit facilities.

Many IMF programmes were terminated before completion, reportedly due to Pakistan’s failure to meet pledged commitments. This discrepancy is reflected in the gap between total sanctioned and disbursed amounts for all programmes up to 2002, as shown on the IMF’s website. The total agreed amount, expressed in thousands of Special Drawing Rights (SDR), was 23,656,650, while the total disbursed amounted to 14,839,045. This information is detailed in a document titled ‘History of Lending Commitments: Pakistan’, available on the IMF website.

Finance Minister Muhammad Aurangzeb and several members of his team were contacted for an update on the IMF deal. However, their response was still pending at the time this report was filed.