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Pakistan careening towards potential default if IMF aid does not arrive: Bloomberg

  • Bloomberg economists believe neighbouring China will help Pakistan in case IMF does not release funds
Published March 21, 2023
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The International Monetary Fund (IMF) could release funding to Pakistan by June under a bailout package, a Bloomberg report on Tuesday stated, but warned the country could be heading towards default if this does not happen.

"Our base case is that the IMF will deliver the remaining $2.6 billion in aid under the current bailout program by June -- helping Pakistan wiggle through the immediate crisis -- as the country has fulfilled most of the IMF's conditions," wrote Bloomberg economists Ankur Shukla and Abhishek Gupta.

"If the aid does not arrive, though, we think China will help plug the gap to head off a default," they added.

The economists, however, warned that “Pakistan is careening toward a potential default as soon as June unless it secures aid from the IMF” and noted that the South Asian nation would require another IMF programme to avoid default in the next fiscal year.

"The country will probably need to seek another IMF bailout program or more external aid from allies to avoid default next fiscal year. If the assistance fails to materialize, we think China will step up again," wrote the economists.

Currently reeling from one of its worst economic crises in history, Pakistan has been faced with a barrage of woes with a perceived default risk and downgrade by international ratings agencies reflecting the state of the economy that has also had to bear major political turmoil and frequent change in key leadership.

Pakistan remains in talks with the international lender for the resumption of the IMF’s Extended Fund Facility (EFF), which has been stalled since last year.

The bailout programme’s revival has been deemed crucial to stabilise the economy that has been hit by a severe dollar shortage in recent months with reserves held by the central bank treading at critically low levels.

Bloomberg economists on Tuesday said Pakistan announcing a default would not bode well for China, a key strategic partner of the South Asian nation.

“If it defaults, China would have much to lose -- far beyond a financial hit. Broader strategic considerations might tip the odds toward China playing a constructive role in helping Pakistan weather the crisis."

Govt did not consult ahead of announcing fuel subsidy proposal: IMF

Pakistan is an important geopolitical ally of China in the region – the world's second largest economy has invested billions of dollars in major infrastructure projects under the multi-billion dollar China-Pakistan Economic Corridor (CPEC) project, which is seen as the main plank of China’s ambitious Belt and Road Initiative (BRI).

“A stable Pakistan is in China's interest, in our view. Any turmoil in the economy and associated social unrest that could result from a default would threaten that stability,” wrote the economists.

Apart from investments, China has also rolled over its funds, providing much-needed cushion to the depleted foreign exchange reserve position, which amounted to $4.3 billion as of March 10.

Last week, Pakistan received a loan tranche from China of $500 million . The latest transfer is the second disbursement of US$500m for Pakistan as part of a US$1.3b rollover facility from China’s ICBC

“Even so, that's not enough for Pakistan to clear its funding crunch - it has $7 billion in external debt repayments due by June and a $1.2 billion hole in its current account to fill over March to June,” wrote Bloomberg economists.

“The government assumes that it will be able to roll over $4 billion of its debt- and squeeze by with its small reserve cushion. Trouble is, there's no guarantee that other creditor nations including Saudi Arabia that have pledged to support Pakistan will agree to roll over their loans,” the economists added.


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Tulukan Mairandi Mar 21, 2023 01:18pm
Iron Brother will help us. Our relationship is deeper than ocean, sweeter than honey and higher than himalayas. And our Sharif Zardari government is excellent, they have told off China that the Taiwan and Xinjiang question will be raised if China does not support Pakistan.
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Haq Mar 21, 2023 01:28pm
How long can we borrow & keep burdening common citizens (indirect taxes), to please elite class. Economy is already choked; debt repayments (external & internal), interests, bonds, clearing of stuck consignments at ports, import of petroleum / edible oil / cotton / raw material / spare parts, repatriation of multinationals profits, salaries / rents to embassy staff, circular debt, IPP payments (capacity / US$), defence, foreign airlines, salaries / pensions / perks of govt & military personnel, supporting loss making SOE, day to day govt affair required Billions of Rupees. Whereas unabated smuggling of US$, rampant corruption, mismanagement, falling industrial output, shrinking economy, loss of revenue & decline in agricultural production. On top of all political instability & global scenarios. It's perfect opportunity to scrap this failed system...!
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Aamir Latif Mar 21, 2023 02:09pm
Seems a mountain to climb and dull in coming to an agreement... Yet GoP again talking fuel subsidies which has been a bone of contentions with IMF during negotiations.. Though this fuel subsidy may not be acceptable to. IMF as mechanism to have two levels of fuels at retails is again difficult to implement, manage and its exploit... Though such releif too late by incumbents, will not save the sinking of PDM ship anyway
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bonce richard Mar 21, 2023 04:54pm
@Haq, We wish the so-called Islamic Republic of Pakistan becomes bankrupt where to a lot of corruption and mismanagement. When one province's peoples dominate the whole country it should have happened.
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Maroof Shah Mar 21, 2023 05:11pm
Pay no attention to the two hindustanis gloating. Pakistan will come through this setback with stronger ties to China, GCC and central asia where it belongs.
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Irfan ullah khan Mar 21, 2023 05:37pm
@Haq, this is a mother land of bearucrates ,gernals,judges,politicians.they are not concern about economy here businessman is treated like dare in a jungle.where are their reforms business friendly enviorment just committies are made .im my point of view a paradise for public servents .
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Adeel Mar 21, 2023 06:44pm
Government apni mudat pori kary gi...... Maqsood Chaprasi along with their allies
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TimeToMovveOn Mar 21, 2023 08:21pm
@Maroof Shah, I would love to see Pak come out of this mess. But show me the roadmap. Is PDM going to make peace with IK? Is IK going to make peace with PDM/Military? Are you going to innovate suddenly and produce products for exports? Is CPEC going to start paying off? Is the military going to stop interfering with politics? How exactly is Pak going to get out. Your 10-year tie with China has resulted in over 30% of national debt owed to one country - CHINA. You dont even realize they are milking you at 7 percent interest rate when I pay 1.9 percent on my mortgage. Also, you dont belong in GCC/central asia camp. You belong in the USA camp where they gave you billions and billions in grants which kept the country afloat all these years. Just think about it. You may not like the "hindustanis gloating" but they are showing you the mirror.
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TimeToMovveOn Mar 21, 2023 08:25pm
CPEC and Kashmir have one thing in common. All tall promises. 10 years ago, CPEC was promised by politicians to unleash economic growth. But they just siphoned off the money and did not complete the projects on time. Kashmir was promised by the military, and instead, they were using the defense budget to build pizza chains. All these mega grandeur are a smoke screens to keep the people diverted. Neither CPEC nor Kashmir at the end. It is not right, but it is sad, and true. Will someone raise accountability on this?
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Sed Mar 22, 2023 04:51am
@TimeToMovveOn, cpec has a lot of potential. It was totally destroyed by that egoistic maniac Imran khan.
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A. Tahir Mar 23, 2023 10:30am
The generals remain clueless about the economic meltdown they caused.
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Dr.Salaria, Aamir Ahmed Mar 23, 2023 10:56am
Pakistan is technically in default.
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Waqas Haider Mar 23, 2023 11:36pm
Nowadays I'm in much worry that of the bail out package because I'm praying that this country should've to default according to me this is worst case scenario is the only reason for public to came out of their homes and took the bloody dangerous duffer(generals) from their homes and tear them up apart...
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Hafeez Mar 24, 2023 11:36am
"Pakistan careening towards potential default if IMF aid does not arrive: Bloomberg" The Blessed month of Ramadan has started...to prevent potential default... the entire country is praying…O’ God…the most merciful, the most compassionate..please forgive our personal and collective shortcomings…and shower your mercy and blessings on our country...On a side note…please expedite the visit to heavens for our Crooks and Corrupt VVIPs…which is now overdue…and assign them a VVIP space in abyss. Ameen!
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Amir Mar 24, 2023 05:55pm
@Hafeez, Amen
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Shah Durrani Mar 24, 2023 08:21pm
@Tulukan Mairandi, are from Mars?
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