Finally, on June 30, 2023, Pakistan got a nine-month $3 billion loan in a Standby Loan Arrangement from the International Monetary Fund (IMF). The deal, subject to approval by the IMF board in July, came hours before the current agreement with the IMF expired on June 30. As expected, the country did not complete the $7 billion loan agreement, which expired pre on the same day. Earlier, in August 2022, the IMF extended $1.1bn to Pakistan as part of a $6.5bn program agreed back in July 2019. This was the 23 IMF loan agreement that Pakistan had failed to complete, which is a record in the institution's history.

The loan is widely seen as a lifeline for the country as it gives a roadmap to Pakistan, which is facing one of its worst economic and political crises on record. Although a bridge loan, it offers much respite to the country, battling an acute balance of payments crisis and falling foreign exchange reserves.

The program is expected to make the required foreign exchange available to reopen imports, help listed companies to gradually ramp up the partially closed production, and reenergize economic activities in the country.

Signs of recovery in economic indicators started to appear as the country clinched much-needed funds from the IMF. The new program has signaled other donor agencies and friendly countries to extend new financing to Islamabad, as they pledged $9 billion at a Geneva meeting in January 2023.[1]

The inflows would also boost foreign exchange reserves and allow the cash-strapped country to prepare for reopening imports. The critically low foreign exchange reserves at $3.5 billion peaked at risk of default, which now receded in the short to medium run amid the revival of the IMF program. As expected, the stock market reacted favorably to the news. It improved by 2,231 points, or 5.38%, on July 3. The market had remained locked in the range of 40,000-42,000 points for the past few months amid the partial closure of the domestic economy. It, however, remains to be seen whether the market will sustain the historical single-day gains in the short-run at a time when the central bank's key policy rate stands at a record high of 22% at present.[2]

The KSE-100 index had become the world's cheapest equity benchmark, according to Bloomberg, as concerns regarding political turmoil and a risk of default had sent investors fleeing.[3]

On July 3, 2023, the Pakistani rupee gained against the dollar by Rs5 and was being quoted at Rs285 in the open market.[4]

So far, so good. The country has now avoided a default situation. It was a blessing for Pakistan in the short term. The business and public mood is now upbeat.

The real concern for Pakistan is the long-term reform agenda of the Government of Pakistan.

Many questions need to be asked now. Will the country be able to get out of the IMF straitjacket any time after the expiry of the current SBA? Will it be able to conduct the required structural reform measures that are desperately needed to stabilize the teetering economy? Will Pakistan get a strong civilian government that can conduct these long-term measures? Can the hybrid political system deliver on the economic front? Will elections be held on schedule? The current PDM government will be ousted from power next month on August 12, and elections must be held within three months by the new yet-to-be-announced caretaker government. The constitution requires general elections before November 12, 2023, in any case. They are expected to be held in late October. Will free and fair general elections be held as required by law?

Unfortunately, evidence suggests that there will not be much improvement in the governance score of Pakistan. The general elections are widely expected to be rigged. The will country will just muddle through. Given the increasing footprint of the military on the country’s political, economic, and security spheres, the future civilian government will be handicapped to conduct these tough reform measures.

What needs to be done immediately is to stabilize the country’s politics so that the economy is stabilized. Political uncertainty is playing havoc with the country’s economy, and it is not the other way around, as argued by many analysts. The political system can only be stabilized when the military stops blatant interference. Not otherwise. This is not going to happen soon enough in Pakistan. Too bad for the nation.

Meanwhile, the government of Pakistan must conduct the tough reform measures demanded by the IMF.

Firstly, the country must get out of the debt trap as soon as possible. Also, it should be able to meaningfully service its foreign debts, including the IMF itself. An integrated plan must be formulated to take Pakistan in this direction. Pakistan faces an astronomical external debt servicing requirement of approximately $23 billion during the current 2023-24 fiscal year period, which is almost six times more than the State Bank of Pakistan's $4 billion forex reserves.[5]

Dar, the finance minister, said that when the PTI government left power, the total foreign loan and liabilities of the country had reached $130 billion whereas the total foreign loan of the country was $70 billion in 2017. He said that a future roadmap had been designed for economic revival and special initiatives were being taken in agriculture, IT, mining, and other sectors.[6]

Dar said that considerable progress had already been made and Pakistan paid $5 billion in commercial bank loans, contributing to a reduction of $4 billion in external debt.

The minister expressed gratitude for China’s substantial assistance, which played a vital role in boosting Pakistan’s overall reserves to $10 billion. “Our target is to further increase reserves to $14-15 billion by the end of the government’s term”, he added.[7]

As of March 31, 2023, the IMF had issued loans of $155 billion to support weak economies. Pakistan was then ranked fifth on the list of countries with the highest borrowing from the IMF. However, after receiving another $3 billion in the next nine months under the standby arrangement, Pakistan will move to fourth place in this list.[8]

Earlier, in terms of loans from the IMF, Argentina ranked first with $46 billion, Egypt stood in second place with $18 billion, Ukraine came in third with $12.2 billion, Ecuador took the fourth spot with $8.2 billion, and Pakistan was at fifth position with $7.4 billion.

Now with loans worth $10.4 billion, Pakistan will overtake Ecuador to become the world’s fourth-largest IMF borrower.

Pakistan is now the largest IMF borrower in the Asian region.[9]

Secondly, the Government of Pakistan must focus on fulfilling the conditionalities of the IMF immediately. Although the government has already fulfilled most of the IMF’s preconditions, these efforts are still considered insufficient. As part of the new loan, the IMF has attached several strings.

These include the removal of remaining import restrictions, further reduction in energy subsidies, and greater adherence to a market-determined exchange rate.

Additionally, the IMF is asking for a ban on unbudgeted spending, the prevention of new tax exemptions, and streamlining of state-owned enterprises.[10]

Thirdly, a comprehensive plan be formulated to modernize the entire Government of Pakistan's decision-making apparatus, which is both inefficient and ineffective. The state bureaucracy must be reformed and red tape be cut. Also, duplication of functions and uncoordinated decision-making at various levels of government be curtailed. A step in the right direction was when the Sharif Government issued a notification on June 17, 2023, to establish the Special Investment Facilitation Council (SIFC), led by the prime minister and including the army chief as a member. Most surprisingly, SIFC will be managed by the military.

The primary objective of the council is to serve as a comprehensive “single window” and streamline bureaucratic procedures.

Within a few days of its setting up, the government agreed to lease out four berths of Karachi Port Trust to Abu Dhabi Ports for 25 years. This transaction was completed in record time without going through competitive bidding or the involvement of an independent consultant for price discovery, as has been the practice so far.

The Sharif Government has expressed great enthusiasm for this initiative. It has been indicated that concrete plans for investments totaling $20 billion have already been formulated, with the potential for this figure to exceed $100 billion. Many independent analysts doubt this can happen soon enough.

The Sharif Government must provide equal opportunities for all stakeholders to participate in investment facilitation initiatives and benefit from any tax concessions granted to new investors.

One of the criticisms leveled against CPEC projects was the perceived preferential treatment given to Chinese companies in terms of special tariffs and tax concessions.[11]

Fourthly, inflation is extremely high in Pakistan and is slowing down, but it is still too high and must be brought down further very soon. Inflation is causing great resentment among the public, and it has become a significant public issue now. Pakistan’s Consumer Price Index (CPI) based inflation slowed down to 29.4 percent on a year-on-year (YoY) basis in June 2023, compared to an increase of 38 percent in the previous month and 21.3 percent in June 2022, says the Pakistan Bureau of Statistics (PBS). On a month-on-month (MoM) basis, it decreased to 0.3 percent in June 2023 as compared to an increase of 1.6 percent in the previous month and an increase of 6.3 percent in June 2022.[12]

Fifthly, Pakistan must document its economy and collect due taxes. The country’s informal “black economy”, or undocumented, and therefore untaxed, is huge by all measures. Some analysts indicate that it is even as high as half the formal economy. India has successfully solved this problem, and so can Pakistan.

Pakistan must widen its tax net immediately and thereby collect more taxes. Every source of income must be taxed. Pakistan is living beyond its means and that must stop immediately. Wasteful expenditure must also be curtailed immediately. Everyone agrees to these common sense requirements, but still, nothing much happens. Only 1% of Pakistanis file their income tax returns.

Sixthly, the Government of Pakistan is bloated and needs to cut its wasteful expenditures like the mammoth defense budget. Though the PDM government has promised to cut government expenditures, it is doubtful that any meaningful reforms will occur. One of the leading businesspeople of the country, Mian Muhammad Mansha, has correctly said: “The federal government has no funds at its disposal and that it collects money so that it may pay salaries of government employees.”

Mansha also very correctly said the government will have to lower the interest rate. He said to reduce the interest rate; the government will first have to privatize state-owned entities. “The biggest issue for Pakistan’s economy is overstaffing at government departments,” he said.

Pakistan must privatize the hundreds of state-owned enterprises, both small and big, that are inefficient and bleeding money endlessly. Instead of privatization of the power distribution companies (DISCOS), the Sharif Government plans to hand them over to the provinces, which is a wrong approach. Mansha has very correctly said DISCOs suffer immense losses due to non-recovery. “The distribution companies in Hyderabad, Sukkur, Quetta, and Khyber Pakhtunkhwa recover only 24% [of their expenditures]. There is a lot of scope for improvement.”[13] That much is obvious and agreed upon by all.

Lastly, the country must address two significant issues dragging it down. The hybrid political system cannot work at all. Citizens are afraid to call it out now. Also, the perennial leadership crisis at all levels of government is exceedingly difficult to resolve. Any meaningful reform needs capacity at all levels of the government. Reforms cannot be undertaken because the best minds have fled the country already. Other bright ones are voting with their feet and leaving Pakistan also. Given this sorry situation, there cannot be the expected reforms any time soon. Therefore, at best, Pakistan will just muddle through, which is far better than a collapse.

Dr. Sohail Mahmood is an Independent Political Analyst based in Chapel Hill NC

[1] Salman Siddiqui, “PSX surges 5.38% after Pakistan secures IMF lifeline”, Express Tribune, July 3, 2023, PSX surges 5.38% after Pakistan secures IMF lifeline (tribune.com.pk)

[2]  Stocks rally as Pakistan, IMF strike deal after nine-month delay, The News, July 3, 2023, Stocks rally as Pakistan, IMF strike deal after nine-month delay (thenews.com.pk) & Stocks rally as Pakistan, IMF strike deal after nine-month delay, The News, July 3, 2023, Stocks rally as Pakistan, IMF strike deal after nine-month delay (thenews.com.pk)

[3] Stocks rally as Pakistan, IMF strike deal after nine-month delay, The News, July 3, 2023, Stocks rally as Pakistan, IMF strike deal after nine-month delay (thenews.com.pk)

[4] USD to PKR: Rupee gains massive recovery against dollar after IMF deal.

Daily Pakistan., July 3, 2023, USD to PKR: Rupee gains massive recovery against dollar after IMF deal (dailypakistan.com.pk)

[5] Stocks rally as Pakistan, IMF strike deal after nine-month delay, The News, July 3, 2023, Stocks rally as Pakistan, IMF strike deal after nine-month delay (thenews.com.pk)

[6]  Dar Hopes Pakistan’s foreign reserves to reach $14-15 billion by the end of govt’s tenure, Dunya news, July 1, 2023, Dar hopes Pakistan's foreign reserves to reach $14-15 billion by end of govt's tenure - Pakistan - Dunya News

[7] Manzoor Ahmad, “IMF loan and Investment Plan B”, Express Tribune, July 3, 2023, IMF loan and Investment Plan B (tribune.com.pk)

[8] Pakistan set to become 4th biggest IMF debtor, The Express Tribune, July 3, 2023,

Pakistan set to become 4th biggest IMF debtor (tribune.com.pk)

[9] Ibid

[10] Manzoor Ahmad, “IMF loan and Investment Plan B”, Express Tribune, July 3, 2023, IMF loan and Investment Plan B (tribune.com.pk)

[11] Ibid

[12] Pakistan’s Inflation Drops Under 30% for First Time Since January 2023, ProPK Staff, Jul 3, 2023, Pakistan's Inflation Drops Under 30% for First Time Since January 2023 (propakistani.pk)

[13] Ibid