Pakistan ‘to agree’ to tough IMF conditions as crisis worsens

Peshawar, Pakistan (AFP):

Pakistan Prime Minister Shehbaz Sharif said Friday the government would have to agree to IMF bailout conditions that are “beyond imagination”, as it battles a spiralling economic crisis.

An International Monetary Fund (IMF) delegation landed in Pakistan on Tuesday for last-ditch talks to revive vital financial aid that has stalled for months.

The government has held out against tax rises and subsidy slashing demanded by the IMF, fearful of backlash ahead of elections due in October.

“I will not go into the details but will only say that our economic challenge is unimaginable. The conditions we will have to agree to with the IMF are beyond imagination. But we will have to agree with the conditions,” Sharif said in televised comments.

Pakistan’s economy is in dire straits, stricken by a balance of payments crisis as it attempts to service high levels of external debt, amid political chaos and deteriorating security.

Foreign exchange reserves dropped again this week to $3.1 billion, which analysts said would be enough to cover less than three weeks of imports, while the rupee is at a record low against the US dollar.

The world’s fifth-biggest population is no longer issuing letters of credit, except for essential food and medicines, causing a backlog of thousands of shipping containers at Karachi port stuffed with stock the country can no longer afford.

Data on Wednesday showed year-on-year inflation had risen to a 48-year high, leaving Pakistanis struggling to afford basic food items.

“Poor people will not be able to survive,” said Samina Bhatti as she shopped at a market in Islamabad.

“Petrol is so expensive, what will they do, will they start travelling on foot? A daily wage earner can’t afford the rent on his home,” she said.

Bowing to pressure

Years of financial mismanagement and political instability have damaged Pakistan’s economy, worsened by a global energy crisis and devastating floods that submerged a third of the country.

With the prospect of national bankruptcy looming, Islamabad in recent weeks began to bow to pressure prompting the IMF’s last-minute visit.

The government loosened controls on the rupee to rein in a rampant black market in US dollars, a step that caused the currency to plunge to a record low, and hiked petrol prices by 16 percent.

But the IMF wants further hikes to artificially cheap petrol, electricity and gas prices, designed to help low-income families, and the withdrawal of tax exemptions for the export sector and a boost to the pitifully low tax base.

“Accepting IMF conditions will definitely increase prices, but Pakistan has no other choice,” analyst Abid Hasan told AFP. “Otherwise, there is a fear of a situation like Sri Lanka and Lebanon.”

Pakistan had sketched out a $6.5 billion dollar loan package with the global lender, which has so far paid out roughly $4 billion.

Political chaos

The next instalment on the negotiating table is unlikely to induce an economic turnaround on its own.

However, friendly nations Islamabad usually approaches for help have indicated they may open their books once the IMF is on board.

The tumbling economy mirrors Pakistan’s political chaos, with former prime minister Imran Khan heaping pressure on the ruling coalition in his bid for early elections while his popularity remains high.

Khan, who was ousted last year in a no-confidence motion, negotiated a multi-billion-dollar loan package from the IMF in 2019.

But he reneged on promises to cut subsidies and market interventions that had cushioned the cost-of-living crisis, causing the programme to stall.

It is a common pattern in Pakistan, where most people live in rural poverty, with more than two dozen IMF deals brokered and then broken over the decades.