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The prime minister of Pakistan, Shehbaz Sharif, has made a commitment to revive the country’s crisis-ridden economy ahead of highly contested elections this year. The government recently secured a crucial $3 billion IMF rescue financing deal to avoid default.
Following months of tense negotiations, Pakistan and the IMF reached a preliminary agreement for a nine-month loan package. This agreement will help prevent an imminent default after Pakistan’s foreign reserves reached dangerously low levels. The deal is expected to be approved by the IMF board later this month.
Sharif praised the deal as a “much-needed breather” for the country, emphasizing that economic stability should not rely solely on loans. He expressed hope that this program will be the last of its kind.
The finance minister, Ishaq Dar, stated, “We have stopped the decline, and now we have to turn to growth.”
The news of the IMF deal caused Pakistan’s stocks to surge by the highest percentage in three years. The benchmark KSE 100 index jumped almost 6% on Monday morning, leading to an hourlong trading halt in Karachi.
In addition, the deal had a positive impact on Pakistan’s sovereign bonds, which rallied sharply in recent weeks. One dollar bond maturing in April 2024 climbed in early trading on Monday.
Sharif stated that this IMF deal would strengthen his government’s position against his main rival, former cricketer and prime minister Imran Khan. However, analysts warn that the bailout is a temporary fix to Pakistan’s economic crisis, which is one of the worst in its history. Sharif’s government still needs to raise billions from lenders such as China and Saudi Arabia. It also needs to address issues such as inflation, poverty, and the shortage of dollars.
Abid Hasan, a former World Bank adviser, commented, “The presence of the IMF gives confidence to the private sector that their government will generally pursue a prudent fiscal and monetary policy.” However, he cautioned that Pakistan must implement the necessary reforms to put an end to the country’s recurrent economic struggles.
As elections approach, there may be pressure to deviate from the IMF-mandated reforms, which include measures such as cutting subsidies and raising taxes. Critics argue that without a long-term commitment to these reforms, the crisis may resurface, especially if there is a change in government.
The IMF deal may not immediately alleviate the struggles faced by businesses. Many have been negatively impacted by austerity measures and import restrictions, resulting in a drop in foreign reserves. The Overseas Investors Chamber of Commerce and Industry believes that the deal will remove uncertainty but emphasizes the need for confidence-building measures to revive economic activities.
While the IMF deal offers some relief, challenges persist in Pakistan’s economy. The textile sector, for example, has experienced high costs and supply constraints, leading to closures and job losses. Some multinational companies have even decided to leave the country due to the severity of the economic crisis.
It is crucial for Pakistan to take ownership of its future and implement sustainable economic reforms to break free from cycles of boom and bust.
Additional reporting by Hudson Lockett in Hong Kong.
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