Pakistan seeks to end 50 years of IMF debt with ESG bond, trade

Pakistan, which has sought almost 20 bailouts from the International Monetary Fund over half a century, wants to end its reliance on the multilateral lender by shrinking deficits and tapping capital markets on its way to sustainable economic growth.  

Finance Minister Shaukat Tarin, who negotiated the last leg of its current IMF loan, is targeting a budget shortfall to 5%-5.25% of gross domestic product in the year starting July 1, from 6.1% now, and aims to spur economic growth to 6% from 5%. 

“I think this program should be enough,” Tarin, 68, said in an interview in Islamabad. “If we start generating 5%-6% balanced growth, which means sustainable growth, then I don’t think we need another IMF program.” 

The commitment to an IMF-free future comes as the lender this week agreed to resume a $6 billion loan program, which had been stalled since 2019 as Pakistan took steps to meet the loan conditions. 

Prime Minister Imran Khan has been a vocal critic of IMF bailouts, saying “the begging bowl needed to be broken” if Pakistan is to command respect in the world. On its way to outgrowing the need for IMF help, the nation also prefers bilateral loans or commercial borrowings that don’t include austerity demands.  

Tarin also said in the interview that he plans to raise $1 billion via an ESG-compliant Eurobond in March, which would follow a similar amount of Sukuk last week. 

The first part of Tarin’s plan to halt Pakistan’s boom-bust cycle involves boosting exports. The central bank offered cheap loans to manufacturers and energy tariffs were brought in line with the region. Textile shipments -- more than half of total exports -- are poised to surge 40% to a record $21 billion in the year through June and further to $26 billion next year, according to Khan’s commerce adviser.  

Pakistan also plans to extend similar incentives to the technology sector as it seeks to ride a wave of global venture-capital interest in startups. The policies could be unveiled in about a month, Tarin said.  

Since his appointment in April 2021, Tarin renegotiated some of the IMF’s financial conditions, including a smaller increase in utility prices and lower mop up in taxes than the lender had earlier insisted on.  

The government has adopted some of the structural conditions, which include increasing autonomy for the central bank and putting an end to deficit monetization. Like predecessors, Tarin hasn’t been able to significantly broaden Pakistan’s tax base or sell loss-making state-run firms.  

Previous governments accepted IMF conditions in the short term and, when the program ends, policy makers revert to profligate spending, Tarin said. Instead, he vowed to “control our expenses” in the upcoming budget. 

“We are trying to now take those steps, which are going to put this economy on an inclusive and sustainable growth path,” said Tarin. “Once it gathers momentum and is sustainable, then I think we will probably see 20-30 years of growth.”