- Pakistan is still in discussions with the international lender to resume the IMF’s Extended Fund Facility (EFF).
- In June, the IMF will release $2.6 billion to Pakistan.
New York City: According to a report by Bloomberg Economics on Tuesday, Pakistan may receive funding from the International Monetary Fund (IMF) as part of a bailout package by June.
The economists at Bloomberg believe that the IMF will provide the remaining $2.6 billion in aid under the current program as Pakistan has met most of the IMF’s conditions. However, if the aid does not come through, China may step in to prevent a default.
The economists cautioned that Pakistan is at risk of default as early as June if it fails to obtain aid from the IMF. They also noted that in the next fiscal year, the country will need another IMF bailout program or additional external aid from its allies to avoid default. In the event that Pakistan does not receive the necessary support, the economists believe that China will provide assistance again.
Pakistan is currently grappling with one of its worst economic crises, compounded by political instability and frequent changes in leadership. The country’s economy has been downgraded by international ratings agencies, reflecting its perceived default risk. Pakistan is still in negotiations with the IMF to resume the Extended Fund Facility (EFF), which has been on hold since last year.
The revival of the bailout program is crucial to stabilize Pakistan’s economy, which has been hit hard by a severe shortage of dollars in recent months, resulting in critically low levels of reserves held by the central bank.
According to Bloomberg economists, if Pakistan were to default, it would not be beneficial for China, which is a significant strategic partner of Pakistan. The economists stated that broader strategic considerations might prompt China to play a constructive role in assisting Pakistan during this crisis, as a stable Pakistan is in China’s best interests.
China has invested billions of dollars in major infrastructure projects under the China-Pakistan Economic Corridor (CPEC) project, which is a significant part of China’s ambitious Belt and Road Initiative (BRI). Pakistan is a crucial geopolitical ally of China in the region, and any economic turmoil and associated social unrest resulting from a default could threaten the stability of the country.
China has not only invested in Pakistan but has also extended the duration of its funds, which has provided much-needed support to Pakistan’s depleted foreign exchange reserves. As of March 10, Pakistan’s foreign exchange reserve position was only $4.3 billion.
Recently, Pakistan received a loan tranche of $500 million from China, which is the second disbursement of a $1.3 billion rollover facility from China’s ICBC. However, according to Bloomberg economists, this amount is insufficient to resolve Pakistan’s funding crisis. The country has external debt repayments of $7 billion due by June and a current account deficit of $1.2 billion to fill between March and June.
The Pakistani government is counting on rolling over $4 billion of its debt and relying on its small reserve cushion to weather the crisis. However, the economists warned that other creditor nations, such as Saudi Arabia, may not agree to roll over their loans, leaving Pakistan in a precarious situation.