EDITORIAL: The International Monetary Fund (IMF), in its documents titled First Review Under the Extended Arrangement under the Extended Fund Facility, uploaded this Saturday projected Pakistan’s external debt at 126.731 billion dollars next fiscal year staring 12 July 2025 – a rise of 2.7 percent from this year’s 123.338 billion dollars. This, the IMF notes, implies that substantial progress has been made in realising the financing commitments for next fiscal year with good prospects for the remainder of the Fund programme with the last review scheduled for 15 September 2027.
However, the report notes that “risks remain elevated amidst rising global uncertainty” and that “domestic political economy pressures to unwind and delay reforms remain present and may intensify, which would quickly eviscerate Pakistan’s hard won economic stability.”
Hard won economic stability referred to by the Fund needs to be defined. A fact-sheet dated April 2014 on the IMF website stipulates that promoting economic stability is partly a matter of avoiding economic and financial crises, large swings in economic activity, high inflation and excessive volatility in exchange rates and financial markets.
There is overwhelming macroeconomic evidence that the economic and financial crises (read the possibility of a default) have been averted; however, this has been at the cost of a rise in external debt. Pakistan has successfully secured 16 billion-dollar rollovers from the three friendly countries (China, Saudi Arabia and the UAE) with the State Bank Governor disturbingly revealing that the foreign exchange reserves by the end of June 2025 would still be 2 billion-dollar less — at 14 billion dollars only. If one takes account of other external loans procured by the country during the year then the external outflows outpacing inflows as indicated in the financial accounts should raise alarm bells.
Pakistan’s inflation has plummeted in recent months and yet the Fund referred to domestic political pressures. What is patently evident is an increasing unease within the general public that the onus of the burden of IMF reforms is being squarely passed onto the consumers, a practice in evidence during the previous 23 IMF programmes (with on average duration of three years each) — a perception that is strengthened by a World Bank report that poverty levels remained at 42.4 percent last year but, given the population growth, an additional 1.9 million were pushed below the poverty line this past year.
The recent reduction in the price of electricity, premised on a projection of lower costs attributed to renegotiating some of the independent power producers’ contracts/borrowing from banks at lower rates, given the halving of the discount rate compared to April 2024 to reduce the circular debt, comes with the Fund cautioning the authorities that “it is imperative, given limited fiscal space, that payments for the operation are entirely financed out of the existing debt service surcharge.”
Excessive volatility in the exchange market is now controlled though the Fund has cautioned that “underlying structural vulnerabilities persist in Pakistan’s economy and the authorities should monitor the recent Real Effective Exchange Rate appreciation to avoid eroding competitiveness. Exchange rate flexibility remains necessary to support rebalancing and resilience to shocks.”
The conclusion, therefore, is obvious: stability defined as per the IMF is extremely fragile and given recent reports that Pakistan intends to borrow 350 million dollars from foreign commercial banks, with international rating agencies still placing us at high risk, the interest payable on these loans, if secured, would be very high which, in turn, would raise the mark-up payable in the current year with obvious negative repercussions on the budget deficit with inflationary implications.
Pakistan is still not out of the woods, and it is, therefore, time to desist from citing procurement of external inflows as an accomplishment and instead the focus must be on reducing the number of Pakistanis below the poverty line.
Copyright Business Recorder, 2025
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