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Wednesday, April 17, 2024

Pakistan fails to unlock $1.1 billion

Negotiations between Pakistan and the International Monetary Fund (IMF) have failed to unlock a $1.1bn tranche aimed at preventing the country from going bankrupt.

An IMF team left Pakistan on Friday after crisis talks with the government failed to deliver a deal on financial aid that would help the South Asian country avert economic collapse.

After months of deadlock, the International Monetary Fund arrived last week for last-ditch negotiations with a government fearing the political consequences of enforcing bailout conditions in an election year.

Pakistan’s economy is in dire straits, stricken by a balance-of-payments crisis as it attempts to service high levels of external debt amid political chaos and deteriorating security.

Inflation has rocketed, the rupee has plummeted and the country can no longer afford imports, causing a severe decline in industry.

“Considerable progress was made during the mission on policy measures to address domestic and external imbalances,” the IMF said in a statement.

“Virtual discussions will continue in the coming days to finalise the implementation details of these policies.”

Read more: Why Pakistan needs to think twice before accepting IMF conditions

Prime Minister Shehbaz Sharif previously called the conditions for the $1.2 billion loan instalment “beyond imagination”.

Finance Minister Ishaq Dar addressed the nation after the IMF team left the country on Friday morning, saying talks had “concluded successfully” and that a draft memorandum on broadly agreed policies had been shared by the lender with the government.

Economic analyst Abid Hasan, a former adviser to the World Bank, said “there will be disappointment in the business community”.

“The only way stability can be achieved is through a deal. This has heightened the uncertainty,” he told AFP in the capital Islamabad.

Bankruptcy risk 

Analysts have warned that rejecting conditions and pushing Pakistan to the brink risks bankruptcy and default on external loan repayments.

The IMF wants the nuclear-armed nation to boost its pitifully low tax base, end tax exemptions for the export sector, and raise artificially low petrol, electricity and gas prices meant to help low-income families.

It is also pushing for Pakistan to keep a sustainable amount of US dollars in the bank through guarantees of further support from friendly nations Saudi Arabia, China and the UAE, as well as the World Bank.

On Thursday, the central bank released fresh data warning its forex reserves had plunged by $170 million in a week, standing at just $2.9 billion as of last Friday.

Read more: IMF mission arrives in Pakistan for the 9th review

Since January, the world’s fifth most populous nation is no longer issuing letters of credit, except for essential food and medicine, causing a backlog of shipping containers at a Karachi port stuffed with stock the country can no longer afford.

Industries have warned the logjam of cargo would increasingly cause factories to shut, having a cascading effect on employment.

After months of holding out, the government began to bow to IMF pressure in mid-January, loosening controls on the rupee to rein in a rampant black market in US dollars — a step that caused the currency to plunge to a record low — and hiked petrol prices by 16 percent.

Dar on Friday said petrol prices would rise by roughly four percent and additional taxes would be imposed, without giving further details.

Courtsey: AFP