Finance Minister Muhammad Aurangzeb’s ongoing discussions with the International Monetary Fund (IMF) have sparked a dual sentiment among analysts: some feel a tentative sense of relief under the stringent conditions imposed by the Fund, while others express concern that Pakistan is not yet prepared to shed the burdens of its significant debt.
Should Pakistan secure a minimal three-year loan agreement with the IMF next month, it would only serve as a temporary alleviation rather than a sustainable solution. According to experts consulted by PHEONIXPRO, Pakistan should consider a definitive exit strategy from the IMF to better navigate its future.
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Under last year’s $3 billion stand-by arrangement with the IMF, Pakistan met many goals, but the cost to its citizens was substantial. One analyst noted that without IMF intervention, these objectives might have taken an additional two years to accomplish. Although the IMF’s involvement expedited economic stabilization and improved external sector health, Pakistan’s debt predicament has only deepened.
As of February 2024, the total public debt held by the federal government has spiked by 19% year-over-year to Rs. 64.8 trillion, a rise of about Rs. 10 trillion from Rs. 54.4 trillion in February 2023.
The forecast for the external debt stock is expected to reach $130.850 billion by June 2024. Currently, Pakistan’s debt-to-GDP ratio exceeds 70%, with interest payments devouring nearly 60% of government revenue, the highest ratio among the major regional economies.
Significant losses in public sector organizations highlight the urgent need for privatization. Key entities such as Pakistan International Airlines (PIA), Pakistan Steel Mills, and Railways are prioritized for this transition to profitable operations. An Islamabad-based policy expert emphasized that cutting public sector losses would help shrink the fiscal deficit, thereby reducing Pakistan’s reliance on the IMF.
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Regarding monetary policies, the expert forecasted continued flexibility in credit and exchange rate adjustments to support low inflation levels and steady growth in the Pakistani rupee against the dollar. Meanwhile, ongoing negotiations potentially involving a $32 billion investment from Saudi Arabia could bolster foreign exchange reserves, although skepticism remains about the reality of such large-scale investments.
Finance Minister Aurangzeb also faces the challenge of the IMF’s 1.25% premium on the PKR/$ exchange rate, which complicates dollar inflow and exacerbates rupee depreciation through increased demand in the interbank market. This scenario fuels speculative trading and widens the gap between interbank and open market rates, creating a detrimental cycle for the economy.
On the domestic front, reevaluating tax categorization and power surcharges is crucial to lessen the financial strain on lower-income groups in the upcoming 2024-25 federal budget. Proposed measures include enhanced governance of distribution companies, expanded tax bases, and intensified efforts against tax evasion, which would collectively foster a more equitable tax system.
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Boosting export competitiveness, especially in the IT and textile sectors, should be a priority to increase Pakistan’s global market share. Since 2018, growth in textiles has presented significant opportunities for Pakistani exporters to capitalize on market trends.
As the IMF-World Bank Spring meetings draw to a close, it is imperative for Minister Aurangzeb and his team to negotiate a viable pathway that extricates Pakistan from the IMF’s stringent conditions, enabling the nation to progress towards economic autonomy and stability.
