Pakistan secures $7B aid deal with IMF

Cash-strapped Pakistan and the International Monetary Fund have reached a three-year, $7 billion aid package deal, the Washington-based institution said, giving much-needed respite to the South Asian country.

The new programme, which needs to be validated by the Fund's Executive Board, should enable Pakistan to "cement macroeconomic stability and create conditions for stronger, more inclusive and resilient growth," according to a statement on Friday.

Challenged by the Covid-19 pandemic, Pakistan's economy has found itself on the brink, the effects of the war in Ukraine and supply difficulties that fuelled inflation, as well as record flooding that affected a third of the country in 2022.

With its foreign currency reserves dwindling, Pakistan found itself in a debt crisis and was forced to turn to the IMF, obtaining its first emergency loan in the summer of 2023.

The latest bailout, coming to Pakistan in the form of loans, follows a commitment by the government to implement reforms, including a major effort to broaden the country's tax base.

In a nation of over 240 million people and where most jobs are in the informal sector, only 5.2 million filed income tax returns in 2022.

During the 2024-25 fiscal year which starts July 1, the Pakistan government aims to raise nearly $46 billion in taxes, a 40 percent increase from the previous year.

As part of the push, Pakistan's tax authority earlier this month blocked 210,000 SIM cards of users who have not filed tax returns in a bid to widen the revenue bracket.

24th bailout in over 60 years

The South Asian nation initiated discussions with IMF for the new multi-billion dollar loan agreement — its 24th bailout in more than six decades — to support its economic reform programme.

While around 40 percent of the population already lives below the poverty line, the World Bank said in April it feared that 10 million additional Pakistanis would fall below this threshold.

Islamabad also aims to reduce its fiscal deficit by 1.5 percent to 5.9 percent in the coming year, heeding another key IMF demand.

The last loan — a nine-month $3 billion IMF deal — proved a lifeline.

But it came on condition of unpopular austerity measures, including an end to subsidies cushioning consumer costs.

In recent months, the current account balance has recovered slightly, high inflation is just starting to come down, but Pakistan's foreign debt remains very high at $242 billion.

Servicing it will still swallow up half of the government's income in 2024, according to the IMF.

The Fund also anticipates two percent growth this year, with inflation still expected to reach nearly 25 percent year-on-year, before gradually coming down in 2025 and 2026.