Author : Soumya Bhowmick

Expert Speak Raisina Debates
Published on Jun 21, 2023
Pakistan's borrowing history has discouraged IMF and its allies from providing fresh loans or restructuring existing ones.
Pakistan’s tragedy of errors: IMF et al. Pakistan's tumultuous relationship with the International Monetary Fund (IMF) can be described as a series of unfortunate mistakes that have had increasingly damaging consequences. Over the of 60 years, Pakistan has approached the IMF a staggering 22 times, earning it a dubious distinction. While the nation has often faced rejection due to its reluctance to comply with the IMF's conditions for bailout packages, it has managed to secure financial assistance totalling US$ 4.172 billion from other multilateral lenders such as the Asian Development Bank (ADB) and the Islamic Development Bank (IDB) in the first five months of the fiscal year 2022-23. Additionally, the country has received substantial flood relief assistance exceeding US$ 9 billion from various countries and organisations worldwide. Pakistan's borrowing patterns, combined with an unfavourable increase in gross government debt and its reluctance to reduce spending on subsidised electricity, have discouraged the IMF and its allies from providing fresh loans or restructuring existing ones. Furthermore, successive governments in Pakistan have overlooked the detrimental long-term consequences of implementing subsidy programmes and the resulting budget deficits caused by excessive government spending. Table 1: IMF’s History of Lending Commitments until February 2020 (in thousand SDRs)
Facility Date of Arrangement Expiration Date   Amount Agreed Amount Drawn Outstanding  
Extended Fund Facility    Jul 03, 2019    Oct 02, 2022 42,68,000 10,44,000 10,44,000
Extended Fund Facility    Sep 04, 2013    Sep 30, 2016 43,93,000 43,93,000 37,93,000
Standby Arrangement    Nov 24, 2008    Sep 30, 2011 72,35,900 49,36,035 0
Extended Credit Facility    Dec 06, 2001    Dec 05, 2004 10,33,700 8,61,420 0
Standby Arrangement    Nov 29, 2000    Sep 30, 2001 4,65,000 4,65,000 0
Extended Fund Facility    Oct 20, 1997    Oct 19, 2000 4,54,920 1,13,740 0
Extended Credit Facility    Oct 20, 1997    Oct 19, 2000 6,82,380 2,65,370 0
Standby Arrangement    Dec 13, 1995    Sep 30, 1997 5,62,590 2,94,690 0
Extended Credit Facility    Feb 22, 1994    Dec 13, 1995 6,06,600 1,72,200 0
Extended Fund Facility    Feb 22, 1994    Dec 04, 1995 3,79,100 1,23,200 0
Standby Arrangement    Sep 16, 1993    Feb 22, 1994 2,65,400 88,000 0
Structural Adjustment Facility Commitment    Dec 28, 1988    Dec 27, 1991 3,82,410 3,82,410 0
Standby Arrangement    Dec 28, 1988    Nov 30, 1990 2,73,150 1,94,480 0
Extended Fund Facility    Dec 02, 1981    Nov 23, 1983 9,19,000 7,30,000 0
Extended Fund Facility    Nov 24, 1980    Dec 01, 1981 12,68,000 3,49,000 0
Standby Arrangement    Mar 09, 1977    Mar 08, 1978 80,000 80,000 0
Standby Arrangement    Nov 11, 1974    Nov 10, 1975 75,000 75,000 0
Standby Arrangement    Aug 11, 1973    Aug 10, 1974 75,000 75,000 0
Standby Arrangement    May 18, 1972    May 17, 1973 1,00,000 84,000 0
Standby Arrangement    Oct 17, 1968    Oct 16, 1969 75,000 75,000 0
Standby Arrangement    Mar 16, 1965    Mar 15, 1966 37,500 37,500 0
Standby Arrangement    Dec 08, 1958    Sep 22, 1959 25,000 0 0
Total 2,36,56,650 1,48,39,045 48,37,000
Source: International Monetary Fund Beyond bilateral debt to China and colossal debts to multilateral institutions, Pakistan also owes a hefty US$ 7.8 billion in private debt, mostly comprising private bonds in Eurobonds and global Sukuk bonds. The major chunk of its foreign commercial loans is owed to Chinese financial institutions. A number of caveats are usually asserted with these commercial borrowings, specifically steep rates and short repayment windows. The China Development Bank has recently extended a 3-year loan to Pakistan, of US$ 2.2 billion at a 1.5 percent hike over the Shanghai Interbank Offered Rate (SHIBOR). The private sector balance sheet is also subjected to tremendous pressure with external debt to the tune of PKR 5121 billion, as of March 2023. A significant portion of the challenges faced by Pakistan and its contentious relationship with the IMF stems from its liabilities in the power sector and the mishandling of circular debt. The accumulation of public debt in the power sector due to subsidies and unpaid bills has reached an alarming US$ 14.9 trillion by the end of 2022. Despite the introduction of a Circular Debt Management Plan (CDMP) aimed at addressing the issue, the IMF has been critical of Pakistan's reluctance to raise electricity tariffs within the recommended range of PKR 11-12.50 per unit and provide detailed information on Chinese financial involvement in the China Pakistan Economic Corridor (CPEC). The IMF's rejection of Pakistan's CDMP proposal and its characterisation as “unrealistic” have severely affected the country's efforts to secure IMF assistance.
A significant portion of the challenges faced by Pakistan and its contentious relationship with the IMF stems from its liabilities in the power sector and the mishandling of circular debt.
Pakistan is still in negotiations with the IMF to secure a crucial tranche of US$ 1.1 billion from the Extended Fund Facility (EFF) signed in 2019. The country has implemented measures such as market-determined exchange rates, fuel price hikes, and fiscal reforms as advised by the IMF, but it continues to face challenges in obtaining IMF approval. These measures have contributed to a record-high inflation rate of 27.5 percent year-on-year in January 2023. Additionally, corruption has long been a persistent issue in Pakistan, with bribery, embezzlement, and other illicit practices undermining public institutions and eroding trust in the government. Corruption has distorted market mechanisms, perpetuated resource inequality, and hindered entrepreneurial activity. It has also had a negative impact on foreign investments and international cooperation, further exacerbating the country's challenges in securing the IMF bailout. Looking ahead, Pakistan faces the daunting prospect of another financial crisis, as its debt cycle is expected to persist even after the conclusion of the EFF programme. With dwindling foreign exchange reserves, the country may need to seek additional loans from institutions such as the World Bank and the Asian Development Bank, potentially leading to another IMF programme to address inflationary pressures. (Note – For a more detailed analysis, please see ORF Occasional Paper No. 403 “Debt ad Infinitum: Pakistan’s Macroeconomic Catastrophe”)
Soumya Bhowmick is an Associate Fellow with the Centre for New Economic Diplomacy at the Observer Research Foundation
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Soumya Bhowmick

Soumya Bhowmick

Soumya Bhowmick is an Associate Fellow at the Centre for New Economic Diplomacy at the Observer Research Foundation. His research focuses on sustainable development and ...

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