The IMF board’s meeting, which was anticipated to take place imminently, has been postponed for nearly two-and-a-half months following the signing of the Staff-Level Agreement (SLA). This delay is primarily a result of the urgent requirement to secure additional external financing amounting to $2 billion.
Despite the IMF’s involvement, the shortfall of $600 million, due to the non-contribution of the required funds by friendly bilateral countries, has forced the government to seek loans from private markets. These loans, guaranteed by the Asian Development Bank (ADB), come with high interest rates, raising significant concerns about Pakistan’s debt sustainability.
An interesting revelation is that the IMF’s Debt Sustainability Analysis (DSA) does not include repayments to Chinese Independent Power Producers (IPPs), which might explain China’s reluctance to provide additional funding. Moreover, it is anticipated that the incremental financing of $3 billion for FY26 and FY27 will come from the Chinese Exim Bank, indicating leniency from the IMF towards Pakistan.
Traditionally, having the IMF’s support is crucial for countries under debt stress to secure assistance from other financiers. However, recent trends, including significant delays in countries like Sri Lanka and Zambia, suggest that IMF assurances are no longer sufficient for traditional lenders.
Despite owing the largest share of its external debt to multi-laterals such as the World Bank and ADB, Pakistan’s bilateral lenders, particularly China and Saudi Arabia, have their own concerns. China, in particular, emphasizes the need for political stability in Pakistan and is hesitant to invest under current conditions.
The government’s recent acquisition of a costly loan at around 11 per cent, fully guaranteed by ADB, is a cause for concern. Additionally, the challenge of acquiring further financing to build foreign exchange reserves raises concerns about external debt sustainability, especially given the IMF’s apparent leniency.
The authorities are taking steps to restructure energy contracts, including negotiations with Independent Power Producers (IPPs) and considering talks with Qatar to revisit its long-term RLNG contract. The government has also initiated efforts to restructure domestic debt, which is unsustainable due to high servicing costs.
In conclusion, while the IMF’s involvement is a positive step, it may not be enough to steer Pakistan towards a sustainable growth trajectory. It is imperative to address the issues of political stability, debt sustainability, and economic restructuring, as these are the key areas that need attention to prevent long-term pitfalls.
