Pakistan believes its negotiations on an International Monetary Fund (IMF) bailout will be successful and stave off its balance of payments and economic crises, the country’s Finance Minister said Monday, a day after Prime Minister Imran Khan met IMF chief Christine Lagarde in Dubai to discuss the potential bailout. The IMF, for its part, made its offer contingent on “a strong package of economic reforms,” according to Lagarde, who was also IMF chief during Pakistan’s 12th and most recent IMF bailout, in 2013.
The PM once famously vowed to commit suicide before accepting any IMF loans, and has been resistant to foreign funding in general. But the simultaneously fast decrease in foreign reserves and expansion of the current account deficit have forced his pivot. Pakistan is rapidly running out of money to conduct foreign trade, and its economy is forecast to grow around 4.0 per cent this fiscal year, down from 5.8 per cent in the last.
As a sign of progress on talks, both sides agreed to remain engaged and narrow down differences on policy actions. The IMF also described meeting with PM Khan as constructive, noting that Pakistan’s agreement to cut expenditures “will pave way for accession to the program” for bailouts. On Pakistan’s side, Khan’s government has started a reform program and austerity drive, including auctioning off government-owned luxury vehicles and eight buffaloes.
Even so, the bailout is not yet confirmed: The biggest dispute is over the pace of adjustments in current expenditures, as IMF officials believe there is some space for cuts.
Amid this uncertainty, Pakistan has also turned to other sources, with PM Khan’s trip to the Gulf States also raising a potential C$40-billion offer from Saudi Arabia and the United Arab Emirates, which would give the countries large investment stakes in Pakistan’s energy, mining, and land. The Saudi funding could possibly be released by next week in a signing that would cap PM Khan’s flurry of activity in recent weeks; since January, the PM has visited China, Qatar, and Turkey, and launched a new investment certificate for overseas citizens, all potential sources of new funds.