Pakistan Prime Minister Shehbaz Sharif on Friday said the International Monetary Fund (IMF) was giving a “tough time” to his country over restoration of stalled funding from a $6.5 billion bailout at a time of “unimaginable” economic crisis.
The IMF mission, led by Nathan Porter, began talks on January 31 with the Pakistan government represented by finance minister Ishaq Dar for the ninth review of the assistance package.
“Our economic situation is unimaginable,” the premier said.
“The conditions we have to fulfil are beyond imagination,” he said, but admitted that the country has no option but to accept them. “You all know we are running short of resources,” Sharif said, adding the country was “facing an economic crisis”.
Pakistan’s economy is in dire straits, stricken by a balance of payments crisis as it attempts to service high levels of external debt, amid political chaos and a deteriorating security situation.
PM Sharif made his remarks while addressing an apex committee meeting in Peshawar following Monday’s mosque bombing that killed over 100 people.
While talking about the security situation, Sharif highlighted the economic challenges faced by the country and said that the “situation is in front of the entire nation”.
“As I speak, the IMF delegation is in Islamabad and they are giving finance minister Ishaq Dar and his team a tough time,” he said.
Hours after his remark, the Pakistani rupee, which has been in a steep slide since last week, hit a record low against the US dollar.
The Pakistani rupee fell by 1.9% to a record low of 276.58 per dollar in the inter-bank market on Friday, according to the central bank.
The bank said that its foreign exchange reserves have dropped by 16.1% to $3.09 billion at the end of the last fiscal week, just enough to cover only 18 days’ worth of imports.
An official with the ministry of finance, who asked not to be named, told AFP that this was the lowest level of central bank reserves since 2013 and 2014.
The IMF mission is visiting Pakistan to discuss fiscal consolidation measures the institution needs from Pakistan to clear a 9th review of its Extended Fund Facility, aimed at helping countries facing balance-of-payments crises.
If the deal goes through, the IMF would provide over $1.1 billion in assistance and crucially unlock further loans from friendly nations reluctant to help until the IMF programme is back on track.
The lender had set several conditions for resuming the bailout, including a market-determined exchange rate for the local currency and an easing of fuel subsidies.
The Dawn newspaper, quoting people familiar with the matter, reported that the IMF mission chief demanded clear action to bridge the daunting fiscal gap — between 2 to 2.5 trillion rupees.
“You don’t have any other option” was the critical message, as members of the mission engaged with the finance and power ministries led by Ishaq Dar and Khurram Dastgir Khan, respectively, the people close to the meetings told the newspaper.
In the past week, with the prospect of national bankruptcy looming and no countries willing to offer less painful bailouts, Islamabad has started to bow to pressure to meet IMF demands.
The central bank is no longer issuing letters of credit, except for essential food and medicines, causing a backlog of thousands of shipping containers at Karachi port stuffed with stock the country can no longer afford.
Industry has been hammered by the imports block and massive rupee devaluation. Public construction projects have halted, textile factories have partially shut down and domestic investment has slowed.
The central bank removed a cap on exchange rates and the government hiked the price of Liq¬u¬efied Petroleum Gas (LPG) by 30 per cent and finalised a minimum of ₹6 per unit average increase in electricity rates between now and August, according to a report in the Dawn newspaper.
During the talks, Dar assured the IMF team that Pakistan would soon roll out a plan to reduce the gas sector’s circular debt by half to around Rs700 billion.
Dar, according to the finance ministry, said that reforms were being introduced in the power sector and a high-level committee had been formed for devising modalities to offset the menace of circular debt in the gas sector.
Former prime minister Imran Khan, who was ousted last year in a no-confidence motion, negotiated a multi-billion-dollar loan package from the IMF in 2019.
But he reneged on promises to cut subsidies and market interventions that had cushioned the cost-of-living crisis, causing the programme to stall.
It is a common pattern in Pakistan, where most people live in rural poverty, with more than two dozen IMF deals brokered and then broken over the decades.
Despite the economic situation, Sharif said his country will do whatever possible to fight militancy. “We will use all resources in our capacity to fight this menace,” he said.
