Pakistan stands at IMF crossroads

Summary

• As Pakistan moves into the final year of its $7 billion, 37-month Extended Fund Facility with the International Monetary Fund, policymakers face a much bigger question than simply completing the existing arrangement: what will the country do once the programme ends?
• Pakistan should focus on completing the current IMF programme successfully.
• That is the real measure of success for the current programme: not simply completing another IMF arrangement, but making this one the last.

AI Generated Summary

As Pakistan moves into the final year of its $7 billion, 37-month Extended Fund Facility with the International Monetary Fund, policymakers face a much bigger question than simply completing the existing arrangement: what will the country do once the programme ends?

For perhaps the first time in decades, Pakistan has a realistic chance to step away from its repeated reliance on IMF programmes. The economy remains exposed to significant risks, and the structural weaknesses behind successive balance of payments crises are still present. However, the country is entering this final year in a far stronger position than it was during the crisis of 2023.

Pakistan’s foreign exchange position has improved considerably, providing a much larger cushion than it had two years ago. State Bank reserves have increased to around $21.4 billion, while total liquid reserves, including commercial banks’ holdings, have reached approximately $26.8 billion. The central bank’s reserves now provide nearly three months of import cover.

The country has also returned to international capital markets. In September, Pakistan secured a record $3 billion through a dual-tranche Eurobond, with investor orders reaching almost $6 billion. The successful issuance indicates that global investors are once again willing to provide financing to Pakistan, giving the country an additional source of funds alongside official creditors.

A proposed $10 billion exchange stabilisation facility from the United States could provide further protection. The proposal remains under discussion and would not constitute either a loan or a grant. If finalised, it could serve as a financial safety net and help improve confidence in Pakistan’s markets.