Pakistan needs the financial aid to ease a balance-of-payment crisis triggered by high fiscal and current-account deficits and dwindling foreign exchange reserves. The South Asian nation has already taken 12 IMF support packages since the 1980s.
Shaikh is now negotiating what he called a reasonable loan package with the IMF’s team, led by mission chief Ernesto Ramirez Rigo, who is currently in Islamabad for talks with officials. Negotiations with the IMF have stalled twice in the past over various disagreements, such as the exchange rate policy. The IMF wants Pakistan to raise its tax-to-GDP ratio significantly and contain losses at public enterprises in order to plug financial gaps.
Pakistan’s credit score was downgraded by S&P Global Ratings in February, which cited a weak economic outlook and the delay in securing an IMF bailout. The rupee weakened 18 percent in the past year, the worst-performing currency in Asia, while the benchmark KSE-100 Index of stocks lost 15 percent and closed Friday at the lowest level in almost three years.
Despite seeking financial help from friendly nations like China, Saudi Arabia and the United Arab Emirates, Khan’s economic worries aren’t over. The government is facing slower economic growth and weak revenue collection, limiting its ability to spend. The administration is due to unveil its first budget later this month or early in June.
The funds secured so far “still appear insufficient to place Pakistan’s external financing on a sound footing over the medium term,” said Jeremy Zook, associate director at Fitch Ratings Ltd. in Hong Kong. “Reserves have continued to decline and gross financing needs remain elevated.”
An IMF agreement could attract more stable financing by opening options for budget support from multilateral lenders and improve access to bilateral sources and global capital markets, he said.
To contact the reporters on this story: Kamran Haider in Islamabad at firstname.lastname@example.org;Ismail Dilawar in Karachi at email@example.com