File photo. Rizwan Tabassum—AFP
After narrowly avoiding default last year, Pakistan is once again on the brink as the country’s inflows continue to lag behind its external debt servicing requirements of $27 billion in 2024. Key to averting this possibility is securing a fresh bailout with the International Monetary Fund (IMF), which comes with conditions that the general public and the state alike find hard to digest.
In 2022, as part of measures to shore up dwindling foreign exchange reserves, Islamabad imposed stringent import restrictions, which reduced the current account deficit, but equally brought to standstill import-dependent industries. The insufficient reserves also saw the rupee’s value decline against the dollar, boosting inflation to record levels, with prices yet to reach levels palatable to the vast majority of the country’s population. But these short-term measures are also under threat, as the IMF has already directed Pakistan to ease import restrictions; enforce a purely market-determined exchange rate; and boost taxes, which have already raised fuel and utility prices to dramatically high rates. Unfortunately, Pakistan has no choice but to return to the IMF if it hopes to secure much-needed funding.
Islamabad’s traditional partners—Middle Eastern nations and China—have all made clear they are unwilling to continue bankrolling the state without IMF-mandated reforms. This is especially critical, as Pakistan has repeatedly failed to meet reform commitments in successive governments. This could be papered over in the past, when Pakistan was seen as “too critical to fail,” but the prevalent trend calls for the state to correct its past mistakes and emerge as a sustainable entity, even though this would undoubtedly make the government unpopular with the masses. The incoming government, led by Prime Minister Shehbaz Sharif, will need to shore up foreign goodwill, secure a new IMF deal and enact punishing reforms within months of assuming power. There are tough times ahead; it remains to be seen if the state has the stomach to weather the storm.