Pakistan announced that it must endure “transitional pain” following the International Monetary Fund’s (IMF) approval of a $7 billion relief package to stabilize its struggling economy. While the nation has stabilized since narrowly avoiding default last summer, it remains heavily reliant on IMF bailouts and loans from allied countries to manage its substantial debt, which consumes nearly half of its annual revenue.
Finance Minister Muhammad Aurangzeb stated, “There will be transitional pain, but if we are to make it the last programme, we must implement structural reforms.” The IMF confirmed it would initiate an immediate disbursement of about $1 billion as part of the package.
IMF mission chief Nathan Porter noted the past year has seen a “welcome return to economic stability in Pakistan,” but emphasized the need for the country to transition from this renewed stability toward sustained growth that benefits society broadly. In July, Pakistan agreed to its 24th IMF deal since 1958, contingent upon unpopular reforms, including reducing power subsidies and expanding the tax base.
Prime Minister Shehbaz Sharif highlighted the “tremendous support” from Saudi Arabia, China, and the UAE, which facilitated the deal during the final negotiation phase. He expressed gratitude for China’s role in strengthening Pakistan’s position during these discussions.
Additionally, Aurangzeb revealed ongoing negotiations for a $12 billion loan reprofiling with bilateral lenders, including $5 billion from Saudi Arabia, $4 billion from China, and $3 billion from the UAE for a three- to five-year period. Porter indicated that these countries had provided “significant financing assurances” beyond the existing loan commitments.
The news initially propelled Pakistan’s stock exchange to new heights, though it later lost momentum. Economist Kaiser Bengali cautioned that while the deal will help address immediate debts, the focus on increasing taxes rather than reducing government spending raises concerns.
By the end of 2023, Pakistan’s total debt had exceeded $250 billion, equating to 74% of its GDP, with about 40% owed to foreign creditors. The country’s largest foreign creditor is China, followed by the World Bank. Pakistan’s economic situation has been exacerbated by political turmoil, catastrophic floods, and long-standing mismanagement, leading to a precarious fiscal landscape.
Despite recent IMF acknowledgements of key steps toward economic stability, it warned that formidable vulnerabilities and structural challenges remain, including a difficult business environment and weak governance that stifle investment.
