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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