The International Monetary Fund said it has signed a new $7 billion loan deal with Pakistan to support its faltering economy.
In return, Islamabad agreed to undertake other unpopular reforms, including widening the South Asian nation’s low tax base.
Pakistan teetered on the brink of default last year as the economy shrank due to political chaos, the devastating 2022 monsoon floods and decades of mismanagement, as well as the global economic slowdown.
The country was saved by last-minute loans from friendly countries and support from the IMF, but its finances remain in serious trouble due to high inflation and rising public debt.
The IMF said in a statement on Friday that the new three-year agreement, which still requires the approval of the IMF Executive Board, will help Pakistan “strengthen macroeconomic stability and create the conditions for stronger, more inclusive and resilient growth.”
Dealing with a recession
Islamabad argued for months with IMF officials to secure the new loan – its 24th from the lender in more than six decades.
This was done on the condition of far-reaching reforms, most notably widening the low tax base.
In a country of over 240 million people, where most jobs are in the informal sector, only 5.2 million people filed income tax returns in 2022.
During the 2024-25 fiscal year that began in early July, the government aims to raise about $46 billion from taxes, a 40 percent increase from last year.
In more unusual measures, the tax authority blocked 210,000 SIM cards of mobile users who had not filed tax returns in an effort to expand revenue coverage.
Heeding another key demand of the IMF, Islamabad has aimed to reduce its fiscal deficit by 1.5 percentage points to 5.9 per cent in the coming year.
But Pakistan’s public debt remains huge at $242 billion and will still consume half of the government’s income in 2024 to repay it, according to the IMF.
Analysts have criticised Islamabad’s measures, saying these are superficial reforms – aimed at appeasing the IMF without addressing the underlying problems.
“It is hard to ignore old patterns in this new IMF deal,” Ali Hasnain, associate professor of economics at the Lahore University of Management Sciences, told AFP.
“The IMF has issued a loan similar in size and terms to what was agreed upon five years ago, and five years before that.”
“Will the authorities take advantage of this opportunity to make fundamental improvements in the running of the country?” he asked. “You are advised not to hold your breath.”
Public response
Prime Minister Shahbaz Sharif came to power in February in elections that were marred by allegations of rigging – former Prime Minister Imran Khan was sent to jail and barred from contesting elections.
The austerity measures implemented by his shaky coalition government are likely to undermine his popularity.
There have already been sporadic protests over tax and bill increases in last month’s budget – which was drawn up under IMF supervision – and more demonstrations are expected in the coming weeks.
While about 40 percent of the population already lives below the poverty line, the World Bank said in April that it feared an additional 10 million Pakistanis would fall below that threshold.
The final $3 billion loan that Pakistan was to receive from the IMF in 2023 proved to be a lifeline.
But it also came conditional on unpopular austerity measures, including the elimination of subsidies that had been driving down consumer costs.
In recent months, the current account balance has improved slightly and high inflation has begun to ease.
The IMF expects growth of two percent this year, and inflation is still expected to reach about 25 percent year-on-year, before gradually easing in 2025 and 2026.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
