Pakistan announced on Thursday that it would face “transitional pain” after securing a $7 billion relief package from the International Monetary Fund (IMF) to support its struggling economy.
Although the economy has stabilized since nearly defaulting last summer, Pakistan remains heavily reliant on IMF bailouts and loans from friendly nations to manage its massive debt, which consumes half of its annual revenues. Finance Minister Muhammad Aurangzeb told Geo News, “There will be transitional pain, but if we are to make this the last programme, we need to implement structural reforms.” The IMF has agreed to immediately disburse around $1 billion as part of the package.
IMF Pakistan mission chief Nathan Porter praised Pakistan’s return to economic stability but emphasized the need for sustained growth and broader distribution of its benefits. The new IMF deal, Pakistan’s 24th since 1958, required unpopular reforms, such as cutting power subsidies and expanding the tax base.
Prime Minister Shehbaz Sharif credited the deal’s success to the support of Saudi Arabia, China, and the UAE, highlighting China’s crucial role in the final phase of negotiations. Pakistan is also negotiating a $12 billion loan reprofiling, including $5 billion from Saudi Arabia, $4 billion from China, and $3 billion from the UAE over three to five years.
Despite the deal, Pakistan’s economic challenges remain steep. Economist Kaiser Bengali noted that while the agreement would help address immediate debts, it does little to reduce government spending. By the end of 2023, Pakistan’s total debt had reached over $250 billion (74% of GDP), with significant portions owed to external creditors, primarily China and Chinese commercial banks.
Last year, Pakistan narrowly avoided default amid political turmoil, economic mismanagement, devastating floods, and a global downturn. The IMF agreement was contingent on difficult reforms, including raising household bills to fix the energy sector and boosting tax revenues. With a population of over 240 million, only 5.2 million filed income tax returns in 2022. While the IMF acknowledged Pakistan’s progress, it warned that the country’s vulnerabilities and structural challenges remain formidable.
