IMF criticizes Pakistan budget, casting doubt on bailout prospects
2 min read 15 Jun 2023, 09:09 AM ISTAs the deadline for the latest review of Pakistan's $6.7 billion loan program approaches on June 30, the criticism from the IMF raises concerns.
PremiumThe Pakistan government's budget has come under scrutiny by the International Monetary Fund (IMF) for falling short of the targets set by its bailout program. This criticism indicates that the deadline to unlock aid, which is scheduled for this month, is unlikely to be met. Consequently, the nation's dollar bonds have experienced a decline in value.
As reported by Bloomberg, Esther Perez Ruiz, the IMF’s resident representative in Pakistan, said in a statement that the tax policies in the new budget, unveiled last week, miss “an opportunity to broaden the tax base in a more progressive way, and the long list of new tax expenditures reduces further the fairness of the tax system."
“The new tax amnesty runs against the program’s conditionality and governance agenda and creates a damaging precedent," she said. The IMF is ready to work with Pakistani authorities to refine the budget ahead of its passage.
As the deadline for the latest review of Pakistan's $6.7 billion loan program approaches on June 30, the criticism from the IMF raises concerns. Despite the government's commitment to meeting its debt obligations, the risk of payment defaults is increasing. Moody's Investors Service has recently warned that Pakistan could face default if it does not have an IMF program in place.
“It’s looking increasingly unlikely that Pakistan will secure IMF funding before the current program expires," said Patrick Curran, a senior economist at Tellimer based in Portland, Maine. “A default is likely if Pakistan cannot quickly reach a new agreement with the IMF in the next few months."
In Asian trading on Thursday, Pakistan's $1 billion bond maturing in April next year declined to approximately 55 cents on the dollar, reaching its lowest level in nearly two weeks. The country is confronted with approximately $23 billion in external debt payments for the upcoming fiscal year starting in July.
Despite the criticism from the IMF, Pakistani officials have come forward to defend the budget, emphasizing that the government is aiming to obtain some relief in order to bolster the ongoing economic recovery.
“We don’t want to take any such step that drags us away from stabilization," Junior Finance Minister Aisha Ghaus Pasha told reporters in Islamabad on Wednesday. “While remaining within stabilization mode, we seek a breathing space" to bolster economic growth, she said.
The disbursement of aid has been suspended by the IMF as it demands more robust fiscal policies from Pakistan. However, implementing these measures poses a significant political challenge, particularly with elections anticipated later this year. Addressing a financing gap of $2 billion and making adjustments to the exchange-rate policy are additional significant obstacles that need to be overcome.
Uzair Younus, a director of the Pakistan Initiative at the Atlantic Council’s South Asia Center said, “This budget is clearly unacceptable to the IMF. Given political exigencies in Islamabad, it will be very difficult for the government to meet the IMF’s expectations with days to go before the program is over."