Pakistan’s Minister of State for Finance, Ali Pervaiz Malik, has warned that exiting the International Monetary Fund (IMF) programme would be a risky move for the country, given its significant external financing requirements of $100 billion in the short to medium term. This statement highlights Pakistan’s heavy reliance on foreign creditors, which has constrained its economic options and hindered its pursuit of rapid growth due to fragile economic fundamentals .
We have a narrow path from short to medium term due to $100 billion gross external financing needs and cannot be adventurous,” said Malik while speaking at a seminar organised by the Pakistan Business Council (PBC)the representative body of local and foreign manufacturers.
The statement came a day after the IMF’s Resident Representative Mahir Binici also advised Pakistan to stay on course and exercise patience.
An IMF mission is expected to visit Islamabad next month to hold the first formal review talks under the $7 billion bailout package. The review will determine the government’s seriousness in implementing structural reforms. So far, it has not been able to privatise even one entity, and there is no tangible progress on implementing new income tax rates for the agriculture sector, while traders have also remained largely untouched.
The $100 billion external debt repayments from fiscal year 2024-25 to 2026-27 exclude payments on liabilities recorded on the central bank’s balance sheet and financing requirements for the current account deficit.
The government lacks a viable plan to repay these loans other than requesting lenders each year to defer payments. For this fiscal year alone, external debt repayments amount to $18.8 billion, excluding repayments of central bank liabilities.
Pakistan has secured $12.7 billion in cash deposits to avoid default and heavily relies on four lending nations for annual debt rollovers. Kuwait has previously provided a $700 million loan. The rollovers Pakistan seeks to meet its cumulative $100 billion repayment in four years primarily come from Saudi Arabia ($5 billion), China ($4 billion), the United Arab Emirates (UAE) ($3 billion), and Kuwait ($700 million).
Pakistan’s economic situation is precarious, with a substantial current account deficit and dwindling foreign exchange reserves. The country has sought IMF assistance multiple times in the past, with the first bailout programme initiated in 1958. Since then, Pakistan has entered into several standby agreements with the IMF to address balance of payments crises and stabilize its economy .
The minister’s statement emphasizes the need for Pakistan to maintain its engagement with the IMF and adhere to the programme’s conditions to ensure continued access to external financing. This is crucial for addressing the country’s economic challenges, including its significant external debt obligations and weakened economic fundamentals.
While the economy is experiencing a phase of relative stability, there is increasing pressure on the government to allow for growth.
Malik stated that Pakistan cannot achieve sustainable growth without first addressing fiscal imbalances and low investment and savings ratios.
The country’s investment ratio in the last fiscal year dropped to a half-century low despite government and Special Investment Facilitation Council (SIFC) efforts to attract foreign direct investment.
The Minister of State for Finance admitted that Pakistan is lagging behind its IMF commitments to meet tax targets. The Federal Board of Revenue (FBR) has already sustained a Rs386 billion tax shortfall, which is expected to widen further by the end of this month.
The government had agreed with the IMF to collect nearly Rs13 trillion in taxes during the current fiscal year. However, it has not taken decisive action against traders, and its Tajir Dost Scheme to collect Rs50 billion in additional taxes has failed spectacularly.
“In its rush for revenues, the federal government has created many anomalies, which have caused problems for the people,” said Malik.
The government has access to data on high-net-worth individuals and traders but lacks the political courage to act, said Arif Saeed, a leading businessman and Chairman of the Board of Pakistan Revenue Automation Limitedthe IT arm of the FBR.
Shabbir Dewan, Chairman of the PBC, stated that the government should begin reducing taxes in the next budget, starting with exempting exporters from the 10% super tax.
Business leaders also expressed concerns that the FBR is harassing individuals who have voluntarily entered the tax net.
Due to flawed taxation policies, the salaried class is suffering significantly, yet the government is unwilling to provide relief. Finance Minister Muhammad Aurangzeb stated on Tuesday that the government would simplify tax returns for salaried individuals but indicated that any relief would not be possible until other sectors contribute their fair share of taxes.
