The International Monetary Fund is giving Pakistan a difficult time in ongoing bailout negotiations, Prime Minister Shehbaz Sharif said, heightening the stakes for a country already in the throes of its worst economic crisis in decades.
(Bloomberg) — The International Monetary Fund is giving Pakistan a difficult time in ongoing bailout negotiations, Prime Minister Shehbaz Sharif said, heightening the stakes for a country already in the throes of its worst economic crisis in decades.
“As I’m speaking, the IMF delegation is in Islamabad and definitely giving a tough time to the finance minister and his team,” Sharif said in a speech Friday in the city of Peshawar. The IMF is scheduled to hold talks in Pakistan through Feb. 9 to revive a stalled $6.5 billion loan program.
Sharif said the IMF’s requests for unlocking funds from the program are “beyond imagination,” casting doubt on how soon the nation can expect money to ease 48-year-high inflation and supply shortages.
The IMF funds are also crucial for securing more aid from Middle Eastern countries. Pakistan is struggling to rebuild its foreign exchange reserves to pay for imports and interest on its debt. After Sharif’s speech, the country’s currency and dollar bonds fell.
“The prime minister is under a lot of pressure as he has to face people in upcoming elections due at the end of this year,” said Adnan Khan, head of international sales at Intermarket Securities in Karachi. “He is left with no choice but to accept the harsh IMF conditions. Anyone in his position would do the same.”
Pakistan has a tumultuous track record with the IMF. Most of its previous bailouts — 13 since the late 1980s — weren’t completed. But earlier this year, Sharif’s government loosened its grip on the Pakistani rupee and raised fuel prices, signaling its determination to negotiate.
Pakistan’s foreign currency reserves have dwindled to $3.09 billion as of Jan. 27 — equivalent to less than a month of imports. Local banks are refusing to issue letters of credit, leading to a standstill that could force businesses to shut down.
The rupee fell 1.7% to a record low 275.0250 on Friday, according to data compiled by Bloomberg. Bonds due in April 2024 were indicated 0.3 cents lower at 56.94 cents on the dollar.
Last year’s devastating floods, which caused billions in damage, have added to the woes of an economy already reeling from political turmoil and fallout from the war in Ukraine. Borrowing costs are the highest in 24 years.
The government secured a $1.1 billion loan last year, part of a $6.5 billion package that was stalled due to Islamabad’s failure to meet loan conditions, including boosting energy prices. On Friday, Sharif said Pakistan has no choice but to make compromises.
“We have to meet them in any condition,” he said.
–With assistance from Karl Lester M. Yap.
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