Amir Khan

While the International Monetary Fund’s Staff Level agreement to extend Pakistan a $3-billion short-term loan brings the much-needed relief after almost a yearlong uncertainty surrounding whether the fund’s programme would stay afloat amid political and economic instability, it is essential to acknowledge that Pakistan still has a difficult path ahead, and has to take tough decisions to ensure economic stabilisation and bring down expenditures. Talking to WealthPK, Dr Eatzaz Ahmed, the Memorial Chairperson at the State Bank of Pakistan, said the central bank was grappling with limited foreign currency reserves, hardly enough to cover a mere four weeks of controlled imports. He said the nation's currency had experienced a significant depreciation against the US dollar during the past year, while inflation had surged to record levels.

He said the IMF has projected a depressed growth for Pakistan's economy during the ongoing fiscal year keeping in view the fact the country achieved a growth rate of mere 0.5% during the outgoing fiscal year in stark contrast to 6.5% growth achieved in 2022. Eatzaz Ahmed said Pakistan would have to make debt repayments of a staggering $77 billion by 2026. He elaborated that the IMF short-term loan structured over nine months has been hailed by analysts as providing a much-needed breathing space for the country's ailing economy. He added that the IMF's mission statement emphasised that steadfast policy implementation was crucial for Pakistan to overcome its ongoing challenges.  “This includes efforts to improve economic conditions, enhance fiscal discipline, establish a market-determined or free-floating exchange rate, and implement reforms, particularly in the energy sector.”

He said the announcement of the IMF loan had boosted investor confidence, alleviating concerns about a sudden default. “This is evident from the increase in the value of the country's short-term debt instruments.” He said the IFM loan had caused a significant increase in bond prices with Eurobond due to mature in April 2024 soaring to nearly 71 US cents from a low of 38 cents, and those due in 2025 reaching 55 cents. He said Pakistani bonds saw a surge of over 10% in the UK's over-the-counter market after the loan agreement. Eatzaz Ahmed warned that full and sincere implementation of the new IMF deal was of paramount importance. “Doing so will enable the government to negotiate a long-term loan with the lender of the last resort following the coming general elections.”

Credit: INP-WealthPk