Venu Menon
Wellington, February 25,2024
Pakistan’s interim government is looking at tapping multilateral funding to stabilise the country’s faltering economy in the aftermath of its contentious February 8 general election.
The new government, which is due to be sworn in next week, will move quickly to negotiate with the International Monetary fund (IMF) to extend a short-term $3 billion bailout package which is set to run out in March.
But Imran Khan, the former prime minister currently serving a jail term on charges of graft, has urged the funding agency to exercise caution before closing the deal.
Khan, whose Pakistan Tehreek-e-insaf (PTI) party fielded independents who emerged as the largest bloc in the National Assembly, is unlikely to succeed in thwarting the new coalition from securing the IMF deal.
IMF support is critical for Pakistan at this juncture. Its annual external debt is around $30 billion. Servicing that debt involves further borrowing. As per official data, Pakistan’s current account deficit stands at $269 million. Its debt-to-GDP ratio set by the IMF is 77%.
While Islamabad’s bilateral debt rollovers granted by the Gulf countries helps keep it afloat, it faces the risk of default leading to difficulty in securing multilateral financing in the future.
This underscores the importance of clinching multi-year IMF financing once the short-term support ends.
But IMF support comes with stringent terms and a commitment to unpopular tax reforms.
The new government must also manage its security concerns in the region, not least with India. The new regime will need to keep a watchful eye on the Taliban on its western border, as well as simmering militancy in Pakistan’s tribal areas and Balochistan.
But with China accounting for roughly 30% of Pakistan’s external debt, the new government will be looking to bolster the China-Pakistan Economic Corridor (CPEC), initiated in 2015. Islamabad will continue to serve as Beijing’s key receptacle for investment in the region.
Pakistan is an uneasy confluence of economic, political and security considerations that the new government will find hard to harmonise.
If Khan’s release from incarceration is a possible conciliatory outcome in the current political flux, then the PTI may find an opening to regroup as the Opposition in the National Assembly. But it will have to tone down the hysteria around a “stolen mandate.”
But the fractured legacy of the February 8 election promises to fester. The PTI rewrote the script by winning 93 seats through party-backed independents, a circumstance foisted on it after its leadership faced a crackdown and the party lost its eponymous electoral symbol, the cricket bat.
Its main rivals, the Pakistan Muslim League-Nawaz (PML-N) and Pakistan Peoples Party (PPP), secured 75 and 54 seats, respectively. The PML-N formed a coalition government with support from the PPP and other smaller parties.
Khan stood down as PM after losing a confidence vote in 2022 and was imprisoned the following year in what many believe was the upshot of a falling out with Pakistan’s powerful military.
The PTI has claimed the ballot was tampered with, and pledged to challenge the verdict on the streets and in the courts.
Meanwhile, Pakistan’s central bank estimates that a debt burden of over $6 billion waits to be serviced this fiscal ending June 30. With inflation running at 29%, fluctuating foreign reserves, a weakening currency, and the risk of default on debt repayment, the political consensus in Pakistan favours knocking on the door of the IMF, Khan’s reservations notwithstanding.
Venu Menon is an Indian Newslink reporter based in Wellington
