ISLAMABAD: Pakistan and the International Monetary Fund (IMF) have reached a new agreement securing a US$6 billion bailout for the cash-strapped country, officials said Sunday, following months of painstaking negotiations between the two sides.
The agreement marks Pakistan’s 22nd bailout with the Fund, as the country struggles to stave off a looming balance-of-payments crisis while its economy teeters due to low growth, soaring inflation, and mounting debt.
“The programme aims to support the authorities’ strategy for stronger and more balanced growth by reducing domestic and external imbalances, improving the business environment, strengthening institutions, increasing transparency, and protecting social spending,” said Ramirez Rigo, head of the IMF delegation, in a statement released late Sunday.
According to Pakistan’s finance advisor Abdul Hafeez Sheikh the country is set to receive US$6 billion from the IMF in addition to US$2 to US$3 billion from the World Bank and Asian Development Bank over the next three years.
“We have a US$12 billion gap in our annual payments and we don’t have the capacity to pay them,” Sheik said in a televised address as he announced the new agreement with the fund.
Analysts have warned that any fresh IMF deal would likely come with myriad restrictions that could hobble Prime Minister Imran Khan’s grand promises to build an Islamic welfare state, as the country is forced to tighten its purse strings.
The deal with the IMF comes weeks after Sheikh – a former World Bank official who was Pakistan’s finance minister from 2010-2013 – was appointed as “adviser on finance” after Finance Minister Asad Umar resigned amid a wide-ranging cabin reshuffle.
The abrupt resignation of Umar – one of Khan’s most powerful ministers – was particularly shocking due to his perceived role in overseeing the vital negotiations with the IMF over the long-delayed bailout.
The announcement comes as discontent is already growing over measures Khan’s government has taken to fend off the crisis, including devaluing the rupee by some 30% since January 2018, sending inflation to five-year highs.
A government report published Friday also noted that Pakistan’s growth rate is set to hit an eight-year low, with the country’s GDP rate likely to sink to 3.3% against a projected target of 6.2%.
Pakistan has had 21 bailouts since it joined the IMF in 1950. Its most recent loan was issued in 2013, worth US$6.6 billion.
The United Arab Emirates – Pakistan’s largest trading partner in the Middle East and a major investment source – recently offered Us$3 billion to support the battered economy.
Islamabad also secured US$6 billion in funding from Saudi Arabia and struck a 12-month deal for a cash lifeline during Khan’s visit to the kingdom in October.
However the influx of Gulf cash failed to reverse the economic headwinds battering Pakistan, as high fuel prices, low tax yields, and rising inflation have kept the country off balance.
The crisis also comes as Pakistan is facing possible sanctions from the Financial Action Task Force –an anti money-laundering monitor based in Paris for failing to rein in terror financing.
The organisation will soon decide whether to add Pakistan to a blacklist that would trigger automatic sanctions, further weakening Pakistan’s already faltering economy.
To add to its woes, the United States has also warned that it will be watching closely to ensure Pakistan does not use IMF money to repay debts to China, which has poured billions into the country for infrastructure projects under its Belt and Road Initiative.
US President Donald Trump has already proven to show little sympathy for Pakistan, after last year cutting US$300 million in military aid that had been flowing over logistical assistance to US forces in Afghanistan.