Volatile political situation in Pakistan delaying IMF deal: Report

The current volatile political situation in Pakistan has become a factor in delaying a much-needed deal with the Washington-based IMF that may stabilise the cash-strapped country's economy, according to a media report on Wednesday.

Pakistan's economy is in dire straits. The country is awaiting a much-needed USD 1.1 billion tranche of funding from the International Monetary Fund (IMF).

The funds are part of a USD 6.5 billion bailout package the IMF approved in 2019, which analysts say is critical if Pakistan is to avoid defaulting on external debt obligations.

Quoting diplomatic sources, the Dawn newspaper reported that global lenders, particularly the IMF, are seeking assurances from Pakistan that the future political setup in the country will respect any deal they sign with Islamabad.

Pakistan and the IMF have been negotiating the resumption of an installed USD 7 billion IMF programme for months but have yet to reach an agreement.

Last week, Finance Secretary Hamed Yaqoob Sheikh told reporters that an agreement was likely in the next few days, though Pakistan has missed such timelines in the past as well.

Pakistan has already implemented a series of policy measures that the IMF suggested, including increased taxes, higher energy prices and rising interest rates to the highest in 25 years.

But two major issues remain unresolved: financial and political assurances. The IMF wants Pakistan to show that it can raise enough financial resources to narrow its balance of payments gap.

Since the IMF only provides a part of the loan a borrower needs, it requires the borrower to show that it has pledges from other lenders to bridge the gap.

According to diplomatic sources, China, Saudi Arabia, and other partners have offered help, but the IMF thinks it is insufficient. The government of Pakistan says that the gap is USD 5 billion, but the IMF believes Pakistan needs USD 7 billion.

The IMF also needs the assurance that the government in Islamabad signing the deal can implement it.

But the expected elections in Khyber Pakhtunkhwa and Punjab province, and the possibility of the national elections soon after, have persuaded the IMF to think that the present government may or may not be there to implement the deal it signs.

Elections in the Punjab province are scheduled to be held on April 30 while the Khyber-Pakhtunkhwa governor proposed to hold elections in the province on May 28.