IMF to consider granting Pakistan additional $1.4bn loan

The IMF will today consider extending an extra loan of $1.4 billion to Pakistan in an effort to bolster the country’s foreign exchange reserves and provide budgetary support.

This loan supplements the $6 billion bailout package approved last year for Pakistan to fix its balance of payments problem, stemming from an overvalued exchange rate that favoured imports and a low interest rate that led to high domestic demand. Increasingly expensive imports and low levels of cash inflows have led to a widening deficit, and foreign currency reserves will be able to cover fewer than two months’ worth of imports. This could spell dire consequences for Pakistan’s access to, among other things, oil and advanced medical equipment.

Though it has received IMF support on 21 occasions, Islamabad has only incorporated recommended structural reforms three times. If Pakistan continues to borrow extensively without enacting structural reform, the government will require further international support, likely from China. However, critical changes—such as diversifying exports, reducing public spending and expanding the tax base—are hindered by domestic instability and tense foreign relations with regional neighbours. Regardless, given the devastating impact of the COVID-19 pandemic on emerging economies throughout the world, the IMF is likely to approve the loan being debated today.

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