On September 25, 2024, the International Monetary Fund (IMF) approved a $7 billion loan for Pakistan under a 37-month Extended Fund Facility (EFF), marking the 25th time the country has sought assistance from the IMF amid ongoing economic crises. The coalition government, led by Prime Minister Shehbaz Sharif's Pakistan Muslim League-Nawaz (PML-N), approached the IMF after meeting all necessary conditions set by the lender [8f1c52e8]. This loan is critical as Pakistan's economic growth was only 2.4% last year, which is lower than the population growth rate of 2.6% [ccdf0ae3].
The new IMF program includes significant tax increases and a national fiscal pact, which are expected to generate substantial revenue. However, debt servicing is projected to consume 68% of Pakistan's tax revenue for the fiscal year 2023, raising concerns about the sustainability of this financial strategy [ccdf0ae3]. China remains Pakistan's largest creditor, with $23.6 billion in bilateral credit, which adds another layer of complexity to the country's financial landscape [ccdf0ae3].
While the IMF bailout may provide temporary stabilization for Pakistan's economy, it does not address the underlying structural issues that have plagued the country for years. Critics have warned that the proposed tax measures are likely to provoke political backlash, as they may be unpopular among the public [ccdf0ae3]. Prime Minister Sharif has pledged that this will be the last time Pakistan relies on the IMF for relief, emphasizing the need for far-reaching reforms to widen the tax base and increase household bills [eeb9f347].
In a recent development, the IMF has demanded that Pakistan take decisive action against corruption and political harassment in corruption cases. The IMF emphasized the need for an effective investigation system against corruption and suggested making the National Accountability Bureau (NAB) more independent. An action plan to eliminate corruption is required by June 2025 [1846cedf].
The Financial Times has noted that Pakistan will need to run a primary surplus for years to come to ensure debt sustainability, a challenging prospect given that the last time the country achieved a surplus was two decades ago [f2bf292f]. The IMF's forecast of a two percent growth for Pakistan's economy this year is seen as optimistic by many analysts, who argue that the proposed reforms are merely surface-level and do not tackle the root problems [104475c9].
Furthermore, the IMF has called for digitizing the Federal Board of Revenue (FBR) to ensure accurate data for NAB investigations, highlighting the importance of transparency in the financial system [1846cedf]. The report predicts Pakistan's GDP to remain between 4 to 4.5% during FY2024-25 to 2029-30, with inflation between 6.6 to 9% [8f1c52e8]. As the situation evolves, the effectiveness of the IMF program in stabilizing Pakistan's economy will remain a critical point of discussion among economists and policymakers alike.