Pakistan is banking on $3bn IMF loan, but it might just buy time, not solve debt crisis

As Pakistan faces a crippling debt crisis, its staff-level agreement with the International Monetary Fund (IMF) for $3 billion funding over nine months through a stand-by arrangement (SBA) has offered a ray of hope. However, questions remain on whether the anticipated bailout will be enough to address the country’s severe balance-of-payment issues.

The IMF executive board is scheduled to meet on 12 July to decide on the SBA, including a $1 billion tranche to be released almost immediately, according to a report in the News International, a leading Pakistani English-language newspaper.

If the board approves the SBA, it would be the twenty-third time that Pakistan has taken funding from the IMF since 1958, and the fourteenth IMF bailout since 1988. Pakistan has so far required an SBA 12 times since 1958, underscoring its persistent balance of payments issues.

“Pakistan would become the fourth-largest borrower from the IMF after the SBA is approved. It has a history of approaching the IMF for bailouts, but the question is how would it utilise the new bailout, given its track record?” said Sriparna Pathak, an associate professor of China Studies at O.P. Jindal Global University in Sonipat, Haryana.

Pathak told ThePrint that the true scope of Pakistan’s external debt is not known and is often underestimated due to loans obtained from sources that are not reflected in the account books— including organisations such as the Chinese government’s State Administration of Foreign Exchange (SAFE).

As of 31 March 2023, the total external debt and liabilities of Pakistan stood at $125.72 billion, according to the country’s central bank, the State Bank of Pakistan (SBP). The total liquid foreign exchange reserves as of the weekend ending 30 June stood at $9.745 billion, shows SBP data.

The federal finance minister of Pakistan, Ishaq Dar, on 4 July had stated that he is hopeful that Pakistan’s total foreign exchange reserves would cross $14 billion by the end of the month, with $1.1 billion expected to be released by the IMF, $2 billion from Saudi Arabia, and $1 billion from the United Arab Emirates (UAE), reported the Pakistani newspaper Minute Mirror.