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Wednesday, May 22, 2024

IMF Flags Pakistan Amid Conflict-Ridden Nations

Pakistan navigates IMF engagement amidst regional conflicts, aiming for economic stability through structural reforms and cautious monetary policies amidst global uncertainties.

The International Monetary Fund (IMF) has identified Pakistan as one of six nations grappling with serious conflicts this year, potentially impacting their economic stability. Finance Minister Muhammad Aurangzeb recently engaged with IMF Managing Director Kristalina Georgieva, indicating Pakistan’s interest in securing another long-term bailout package. Although details of the meeting remain undisclosed, IMF’s Middle East and Central Asia Director Jihad Azour emphasized the significance of structural reforms over the size of financial assistance.

According to the IMF’s report on the Middle East and Central Asia, conflicts, stringent economic policies, and reduced hydrocarbon production are expected to limit the region’s economic growth to 2.6% in 2024. The report identifies Pakistan alongside Iraq, Somalia, Sudan, Syria, and Yemen as nations grappling with significant conflicts. Notably, Pakistan’s economic outlook, characterized by an uneven recovery and persistent structural challenges, projects a 2% growth rate for 2024.

Despite Pakistan’s population growth rate of 2.6%, a modest growth forecast of 2% raises concerns about rising unemployment and poverty exacerbated by inflation. The IMF advises Pakistan to maintain tight monetary policies, despite inflation slowing to 20.7% in March. The IMF’s inflation forecast for Pakistan stands at 24.8% for the current fiscal year, with a cautionary note on the country’s external sector buffers and high exposure of banks to sovereign debt.

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Moreover, Pakistan aims to negotiate a new IMF loan agreement, seeking permanence in macroeconomic stability and executing structural reforms. While discussions with the IMF are underway, Aurangzeb asserts that a new loan won’t trigger rapid rupee devaluation. The IMF echoes the importance of prioritizing reforms over loan size, signaling Pakistan’s need to accelerate structural changes for sustainable growth.

Amidst these economic deliberations, Pakistan anticipates accumulating $10 billion in foreign exchange reserves by June and aims to return to international capital markets, potentially through a green bond issuance. However, ratings improvements and further fiscal adjustments are prerequisites for this move, suggesting a cautious yet optimistic outlook for Pakistan’s economic trajectory amidst global uncertainties.