IMF Reaches $7 Billion Loan Deal with Pakistan to Bolster Economy
The International Monetary Fund (IMF) has approved a new $7 billion loan deal with Pakistan to help stabilize its struggling economy. In exchange for the loan, Pakistan has agreed to implement further unpopular reforms, including expanding its low tax base.
Pakistan faced a financial crisis last year due to a combination of political instability, natural disasters, and economic mismanagement. The country narrowly avoided default with last-minute loans from allies and support from the IMF. However, high inflation and massive public debts continue to plague the nation.
The new three-year loan deal aims to “cement macroeconomic stability and create conditions for stronger, more inclusive and resilient growth,” according to the IMF. The agreement is still pending approval from the IMF Executive Board.
To meet the IMF’s conditions, Pakistan must undertake significant reforms, such as increasing tax revenue. Despite having a population of over 240 million, only 5.2 million people filed income tax returns in 2022. The government aims to raise nearly $46 billion in taxes during the current fiscal year, a 40 percent increase from the previous year.
Critics argue that Pakistan’s reforms are superficial and fail to address underlying issues. Prime Minister Shehbaz Sharif, who came to power in a controversial election, faces public backlash over the austerity measures introduced by his government. Protests have erupted over tax and bill hikes, with more demonstrations expected in the coming weeks.
While the IMF loan provides much-needed financial support, challenges remain for Pakistan’s economy. The country’s public debt stands at $242 billion, and servicing it will consume half of the government’s income in 2024. Analysts are skeptical about whether Pakistan will use this opportunity to implement meaningful reforms and address systemic issues.
Despite the economic challenges, the IMF anticipates a modest two percent growth for Pakistan this year. However, inflation is expected to remain high at nearly 25 percent, gradually decreasing in the following years. The road ahead for Pakistan’s economy remains uncertain, with the IMF loan serving as a temporary lifeline amidst ongoing financial struggles.
