Pakistan and the International Monetary Fund have held days of talks on reviving a stalled $6.5 billion bailout program but have failed to reach a deal to help prevent a looming default facing the South Asian nation.
The 10-day talks with the IMF delegation were “extensive” and “concluded successfully” before the visitors left the country early Friday, Finance Minister Ishaq Dar told a hurriedly convened news conference in the Pakistani capital, Islamabad.
Dar said his team will hold a virtual meeting with the IMF Monday after reviewing a draft memorandum on broadly agreed-to policies the IMF mission shared with his government.
An IMF statement described the talks with Pakistani officials as constructive and said “considerable progress” had been made.
However, it stressed “this mission will not result in a board discussion,” a meeting that would lead to the release of a $1.1 billion tranche critical to supporting the country’s crisis-hit $350 billion economy.
The tranche was initially expected to be disbursed in December as part of the $6.5 billion bailout package Pakistan signed with the IMF in 2019. The program is due to end in June.
The IMF must reach a staff-level agreement with Islamabad, which then requires approval by the agency’s Washington headquarters before the funds are released.
“Virtual discussions will continue in the coming days to finalize the implementation details of these policies,” the IMF said in its post-visit statement. It went on to stress the “timely and decisive” implementation of the policies was crucial for Pakistan to “successfully regain macroeconomic stability and advance its sustainable development.”
Economic experts see the IMF deal as key to preventing Pakistan from defaulting on external payment obligations and paving the way for other global lenders, including the World Bank and foreign governments, such as those of Saudi Arabia and China, to release funds.
Last year’s unprecedented summer flooding has fueled Pakistan’s economic troubles, stemming mainly from lingering political turmoil and security challenges in the wake of rising insurgent attacks.
Inflation has been raging at historic levels, the rupee has lost more than 35% against the U.S. dollar, and central bank foreign exchange reserves dipped to less than $3 billion this week — the lowest in a decade. The depleting dollar reserves have forced the government to place restrictions on imports, causing a severe industrial decline in Pakistan.
The IMF has been pushing the nuclear-armed country to broaden its low tax base, do away with tax exemptions for the export sector, and raise low gasoline, power, and natural gas prices.
The reforms would likely increase inflation to new record levels if Pakistan eventually secures the staff-level agreement with the IMF, according to experts.
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