IMF, Pakistan fail to conclude loan deal; discussions to continue

By Al Mayadeen English
Source: Agencies
10 Feb 2023 10:20
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The IMF presents a new draft of extended policies to Pakistan as conditions for the much-needed loan.

The headquarters of the International Monetary Fund in Washington (AFP)

Pakistan failed to reach a long-stalled agreement with the International Monetary Fund (IMF) on Friday after several months of negotiations.

The IMF team, who landed in the South Asian country on January 31, left on Friday following failed talks with the government on the $1.2 billion loan.

Pakistan's Prime Minister Shehbaz Sharif dubbed earlier the terms and conditions of the IMF as "beyond imagination", noting however that Islamabad "will have to agree with the conditions."

Some background

Pakistan, which is on the verge of economic collapse, has been facing a political crisis and is struggling with deteriorating social issues and security.

The country's balance of payments crisis is one of the largest problems striking Pakistan that is causing major instability in the local currency's rate.

Pakistan's foreign exchange reserves have fallen to $2.9 billion to date, as the country now stands at $100 billion in foreign debts and liabilities, scheduled to repay over $26 billion this fiscal year in foreign debts and bridge the country's massive current account deficit due to trade imbalance.

According to the central bank, the current foreign exchange reserves are not enough for even three weeks of imports, while Pakistanis are unable to afford basic foods due to the forty-eight-year high inflation year-on-year.

Despite earlier talks with friendly countries on financial bailouts, Pakistan was forced to give in to the IMF terms as the country faced a very critical economic and financial state and is unable to wait for the results of the talks.

The IMF is pushing Pakistan to back a viable amount of US dollars deposited in domestic banks through guarantees from countries such as China, UAE, and Saudi Arabia, in addition to the World Bank.

Except for basic essential medicines and food, the Asian country has halted giving letters of credit (LOCs), which resulted in a backlog of tens of cargo ships that the country can no longer pay for.

IMF: Discussions will continue

“The IMF team welcomes the Prime Minister’s commitment to implement policies needed to safeguard macroeconomic stability and thanks the authorities for the constructive discussions," the IMF said in a statement.

"Considerable progress was made during the mission on policy measures to address domestic and external imbalances," the Fund added.

The statement continued, "The timely and decisive implementation of these policies [conditions] along with resolute financial support from official partners are critical for Pakistan to successfully regain macroeconomic stability and advance its sustainable development."

"Virtual discussions will continue in the coming days to finalize the implementation details of these policies."

The Finance Minister considers the trip 'succesfull'

Following the IMF team's departure from Pakistan, the country's Finance Minister Ishaq Dar said the negotiations "concluded successfully" and that the lender's policies were shared with the government as terms to move forward.

Commenting on the Minister's remarks, a former adviser to the World Bank currently residing in Islamabad told AFP that "there will be disappointment in the business community."

"The only way stability can be achieved is through a deal. This has heightened the uncertainty," economic analyst Abid Hasan added.