Pakistan has not yet settled its account with the International Monetary Fund (IMF) for the release of a bailout package, and disagreements persist over the external financing needs and subsidy cuts. As a result, food inflation in the country rose to 50 percent, and the government planned to increase the prices of gas and electricity by 40 to 50 percent in the new fiscal budget that will be released on June 9.

Although the IMF is aware of the alarming external financing needs of Pakistan and therefore wants a firm commitment on how Pakistan will bridge this gap, the country is ready to comply with the toughest conditions to secure a new loan. Pakistan Prime Minister Shehbaz Sharif has described the IMF terms and conditions as "beyond imagination".

"I will not go into details, just that our economic predicament is unfathomable. The requirements we will have to meet with the IMF are unimaginable. But, we will have to accept the terms "Sharif said in remarks broadcast on television in February.

According to the National Bureau of Statistics (NBS), the annual food price inflation rate was approximately 50 percent in March, higher than the consumer price inflation rate of 35 percent. While the outlook for development is bleak, the IMF anticipates a meager 0.5% growth for the current fiscal year, as compared to 0.4% by the World Bank and 0.6% by the Asian Development Bank. The predictive figures were considerably more optimistic a few months ago.

Alarming debt profile

Despite repeated assurances by the country’s financial wizard, Ishaq Dar that Pakistan is not going to default, there is no clear plan for the payment of the astronomical debt burden the country is currently confronted with. Major repayment demands are imposed by Pakistan's external debt. Pakistan has a $77.5 billion foreign debt that must be repaid between April 2023 and June 2026. This is a significant burden on a 350 billion-dollar economy. The largest repayments will be made over the following three years to Saudi Arabia, private creditors, and Chinese financial institutions.

Pakistan is under immediate pressure to repay its debt of $4.5 billion from April to June this year. The largest repayments are due this month when a $1.4 billion Chinese commercial loan and a $1 billion Chinese SAFE deposit mature. The Chinese government and commercial banks have previously refinanced and rolled over both obligations, and Pakistani authorities are hoping to persuade them to do the same.

Even if Pakistan managed to meet these obligations, the next fiscal year will be more challenging because of the rise in debt service of around $25 billion. This consists of $1 billion in fourth-quarter Eurobond repayments, $7 billion in long-term debt, and $15 billion in short-term funding. The Pakistani government expects the creditors to turn over the $4 billion in Chinese SAFE deposits, $3 billion in Saudi deposits, and $2 billion in UAE deposits each year as part of the short-term loan repayments. Pakistan must further return $1.1 billion in long-term commercial loans to Chinese banks.

With $8.2 billion in long-term debt obligations and another $14.5 billion in short-term debt repayments, including a sizeable repayment of $3.8 billion to Chinese lenders, Pakistan's debt servicing is anticipated to come to roughly $24.6 billion in 2024–2025. The cost of debt servicing is expected to surpass $23 billion in 2025–2026. Pakistan will pay off $8 billion in long-term debt in that year, including $1.8 billion for a Eurobond and $1.9 billion to a Chinese commercial lender.

Thus, it is worrying that foreign exchange reserves are declining. The $4 billion foreign exchange reserves available now will only last for a month's worth of imports. The government's forced suspension of non-essential imports during the winter months significantly hindered industrial operations because some inputs and components were rendered unavailable.

Pakistan's sole options, given the urgency of the crisis, are financial assistance from the IMF and more loans from "friendly states." Yet, settlement with the IMF is seem difficult. Any funding from China or the Gulf States, however, would only offer transient comfort at the cost of aggravating long-term problems.

IMF row

At a time when Pakistan desperately needs the remaining $2.4 billion of the IMF Extended Fund Facility (EEF) of $6.5 billion, the Washington-based monetary agency is delaying the signing of a staff-level agreement with Pakistan, insisting that Pakistan's policymakers must first resolve the issue of fiscal discipline and debt sustainability and provide a road map for achieving macroeconomic stability. Even though China, Saudi Arabia, and the United Arab Emirates have pledged to finance a $5.3 billion deficit in Pakistan's external account, the IMF is not satisfied with Pakistan's external financing arrangements.

Pakistan, for its part, faces a dilemma regarding how to satisfy the IMF's conditions. The fund's rules required the government to reduce expenditure, which would place additional strain on the 25 percent of Pakistan's population that was already living below the poverty line before the current economic crisis came to the surface.

In its dealings with Pakistan, the IMF ignored the underlying fact that things did not go as planned. Pakistan fell short of a number of its macroeconomic goals last year as a result of the global recession and climate change, which provoked a severe heat wave in 2015 and unprecedented flooding in 2022. Last year's inundation caused extensive damage to lives, livelihoods, and infrastructure, necessitating the use of additional public funds for reconstruction.

As bad luck would have it, the cotton crop, which is a significant source of foreign exchange earnings, failed to generate the anticipated yield, resulting in a balance of payments crisis. This situation was known to all international donors and financing agencies, and some have even pledged funds for relief operations. Then comes the Russian-Ukraine issue, which caused a rise in oil and food prices and added pressure on Pakistan's faltering economy.

Utility prices

On June 2, Pakistan's Oil and Gas Regulatory Authority (OGRA) approved a significant hike in Sui gas rates of between 45 and 50 percent, which will become effective on July 1. Sui Southern Gas Corporation (SSGC) and Sui Northern Gas Pipelines Ltd. (SNGPL) have each received price rises of 50% and 45%, respectively. This will be the second significant increase in gas prices since OGRA announced a 124 percent increase in gas sale prices in January on the Petroleum Division's recommendation. The nation also has to deal with an energy problem, with gas and electricity users forced to pay for the corrupt practices of the country's power and gas sectors due to the inability of the government to plug the loophole in the system and flush out the officials responsible for the leakage and theft in the energy industry.

Several power plants constructed with Chinese loans totaling more than $25 billion were unable to end the frequent countrywide blackouts. Nearly all of the power plants funded by Chinese investors have ceased operations since they are unable to source fuel to produce electricity because the economy is dependent on imported oil and gas.