Pakistan said on Thursday it will have to undergo “transition pains” after the International Monetary Fund agreed a new $7 billion relief package to support its faltering economy.
Although the South Asian nation’s economy has stabilised since it came close to default last summer, it still relies on IMF bailouts and loans from friendly countries to repay its massive debt, which swallows up half of its annual revenue.
“There will be pain during the transition but if we have to make this a final event, we have to make structural reforms,” ​​Finance Minister Muhammad Aurangzeb told local broadcaster Geo News.
The IMF said in a statement it would make an “immediate disbursement” of about $1 billion.
It said the three-year loan programme will “require sound policies and reforms” to support ongoing efforts to strengthen Pakistan’s economy and “create the conditions for stronger, more inclusive and resilient growth”.
Pakistan agreed to the deal in July – its 24th payment to the IMF since 1958 – in return for unpopular reforms including cutting electricity subsidies and widening its chronically low tax base.
Speaking on the sidelines of the United Nations General Assembly in New York on Wednesday, Prime Minister Shahbaz Sharif said the agreement was possible due to the “tremendous support” of Saudi Arabia, China and the United Arab Emirates.
“The IMF’s conditions were related to China in the final stages of the negotiations. I am really grateful for the way the Chinese government supported and strengthened us during this period,” he told reporters shortly before the deal was announced.
Last month, Aurangzeb said that Pakistan was in talks with bilateral lenders to restructure $12 billion of its debt.
The amount included $5 billion from Saudi Arabia, $4 billion from China and $3 billion from the United Arab Emirates for a period of three to five years.
Reacting to the news, Pakistan’s stock exchange briefly hit a new record high but fell in later trading.
– ‘Horrible vulnerabilities’ –
“This deal will help us repay our immediate debts, but nothing more than that,” Pakistani economist Qaiser Bengali told AFP.
“The only economic reform we need to implement is higher taxes. There has been no progress in cutting government spending.”
According to the IMF, by the end of 2023, Pakistan — which has long been caught in a cycle of political and economic crises — will have a total debt of over $250 billion, or 74 per cent of its gross domestic product.
According to the report, nearly 40 percent of its debt is from external lenders in foreign currencies. Its largest single foreign lender is China and Chinese commercial banks, with loans amounting to about $30 billion, followed by the World Bank with more than $20 billion.
The country teetered on the brink of default last year as the economy shrank amid political chaos caused by the devastating 2022 monsoon floods and decades of mismanagement, as well as a global economic slowdown.
It was saved by last minute loans from friendly countries and a rescue package from the IMF.
Islamabad argued for months with IMF officials to obtain the latest loan, which came conditional on reforms, including a hike in household bills to overhaul a perennially troubled energy sector and a pathetic tax collection.
In a country with a population of over 240 million, where most jobs are in the informal sector, only 5.2 million people filed income tax returns in 2022.
The IMF said Pakistan had “taken important steps to restore economic stability through continued reforms.” But “despite this progress, Pakistan’s vulnerabilities and structural challenges remain acute”, it warned.
“A difficult business environment, weak governance and the excessive role of the state hinder investment, which is much lower than that of competitors,” it said.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
