Pakistan is facing “significant economic challenges” due to a weak and unbalanced growth and that its economy is at a critical juncture where it needs an ambitious and bold set of reforms, the IMF has said.
Cash-strapped Pakistan, which currently has a currency reserve of less than USD 8 billion, enough to cover only 1.7 months of imports, approached the Washington-based International Monetary Fund (IMF) in August 2018 for a bailout package after the Imran Khan government took over.
The global lender last week formally approved the USD 6 billion loan to Pakistan, which is facing “significant” economic challenges on the back of “large” fiscal and financial needs and “weak and unbalanced” growth.
“Pakistan is facing significant economic challenges on the back of large fiscal and financial needs and weak and unbalanced growth,” David Lipton, First Deputy Managing Director and Acting Chair of the IMF Executive Board said.
Last week, the IMF approved the 13th bailout package for Pakistan since the late 1980s.
The latest bailout package is worth USD 6 billion, of which USD 1 billion is to be disbursed immediately and the rest in the next three years.
In an accompanying report, the IMF said that Pakistan’s economy is at a critical juncture.
The legacy of misaligned economic policies, including large fiscal deficits, loose monetary policy and defence of an overvalued exchange rate, fuelled consumption and short-term growth in recent years, but steadily eroded macroeconomic buffers, increased external and public debt, and depleted international reserves.
Structural weaknesses remained largely unaddressed, including a chronically weak tax administration, a difficult business environment, inefficient and loss making state-owned enterprises, amid a large informal economy.
“Without urgent policy action, economic and financial stability could be at risk, and growth prospects will be insufficient to meet the needs of a rapidly growing population,” the IMF said.
The Fund-supported programme is expected to coalesce broader support from multilateral and bilateral creditors in excess of USD 38 billion, which is crucial for Pakistan to meet its large financing needs in the coming years, it added.
Pakistan has so far received billions in financial aid packages from friendly countries like China, Saudi Arabia and the UAE during the current fiscal year.