Pakistan faces default risk without IMF bailout, Bloomberg says

No IMF deal, no money: Bloomberg warns Pakistan of looming default

Pakistan is facing the risk of an economic default if it fails
to secure a bailout from the International Monetary Fund (IMF), according to
Bloomberg, a US-based financial news service.

Bloomberg reported that Pakistan’s financing options beyond June are highly uncertain andthat without an IMF program, Pakistan could default given its very weak reserves. Pakistan is seeking the release of $3 billion from the IMF to augment its foreign-exchange reserves, which stand at $10.2 billion and cover less than two months of imports.

However,
the negotiations with the IMF have been complicated by political instability
and disagreements over fuel prices. The government of Prime Minister Shehbaz Sharif is facing protests from the opposition led by former premier Imran Khan,
who is demanding early elections and an end to the military’s interference in
politics. The IMF has also asked Pakistan to raise fuel prices to reduce subsidies and fiscal deficit, a move that could trigger public backlash.

Bloomberg
Economics said that Pakistan is likely to dodge default in the next six months,
but its troubles are not over. It said that Pakistan needs to implement structural
reforms to boost growth, reduce debt, and improve governance. It also said
that an engagement with the IMF would support additional financing from other
multilateral and bilateral partners, which could reduce default risk.

Pakistan
has a history of seeking IMF bailouts, having availed 22 programs since 1958. The current program, worth $6.5 billion, was approved in 2019 but has been stalled since early 2020 due to the Covid-19 pandemic and policy differences. Pakistan’s
economy has been hit hard by the health crisis, which has caused a sharp
contraction in output, a surge in inflation, and a widening of the trade
deficit.

Pakistan’s economy is facing multiple challenges, including a
large current account deficit, high public debt, low growth, and high inflation

Pakistan’s
government has ordered shopping centres and markets to close early every day as
the country faces an economic crisis. Defence minister Khawaja Asif says the measures will save the South Asian nation around 62bn Pakistani rupees ($274.3m; £228.9m).

Pakistan’s economy is expected to grow by only 2 percent in the current fiscal year ending June 2023, and by 3.2 percent in fiscal year 2024. The World Bank said
that Pakistan needs to implement structural reforms to boost growth, reduce
debt, and improve governance.

Pakistan’s
economy has been hit hard by the Covid-19 pandemic and the catastrophic floods
that caused $40bn of damage to the country. The World Bank estimated that
the flooding could increase the national poverty rate by 2.5 to 4 percentage
points, pushing between 5.8 and 9 million people into poverty.

Federal
Minister for Planning, Development and Special Initiatives Ahsan Iqbal said
that the size of Pakistan’s economy would be expected to touch $1 trillion by
the year 2035, making it one of the largest in the world. He said that
Pakistan has a huge potential for growth and development, especially in sectors
such as agriculture, industry, services, and tourism.

Pakistan’s economy is forecast to slow to 3.5% in
fiscal year (FY) 2023 (ending 30 June 2023) amid devastating floods, policy
tightening, and critical efforts to tackle sizable fiscal and external
imbalances, even as growth in FY2022 is expected to have reached 6.0%, the
Asian Development Bank (ADB) said in a report.

Pakistan’s
inflation rates are forecasted at 27.5% in 2023 and 15.0% in
2024, reflecting flood-related disruptions to the supply of food and other
goods, higher energy prices, and difficult external conditions, including
tighter global monetary conditions.

Pakistan’s
GDP growth is projected to slow to 0.6% in FY2023 from 6% last
fiscal year as the economy struggles to recover from the impact of the Covid-19
pandemic and the catastrophic floods that caused $40 billion of damage to the
country.