SINCE February when ‘formal’ talks resumed between Pakistan and the IMF for the completion of the ninth review of the lender’s stalled $6.5bn funding programme, it has been a ‘one step forward, two steps back’ situation for the coalition government. Every time the elusive deal seems within reach, a new hurdle crops up.

Now the IMF says it is preparing to discuss Pakistan’s budget plans for the coming financial year “as part of a process to unlock a crucial financing injection”.

This is being seen as a fresh obstacle to the release of the pending bailout funds amounting to $2.6bn. Thus, many are assuming that the programme will remain in limbo at least until the next budget is passed.

The new condition isn’t surprising, considering that Pakistan must hold general elections in October and PML-N ministers are already appearing on TV to assure inflation-stricken party voters of a major ‘relief’. The lender would not want the government to take its dollars and spend the money to win the elections. We know how all fiscal discretion is abandoned in the attempt to win votes.

The IMF deal is crucial for tackling our severe balance-of-payments crisis, and avoiding default and potentially difficult debt restructuring. Without a staff-level agreement for the held-up $1.1bn tranche since November, foreign exchange reserves have declined to $4.5bn — just enough for a month of controlled imports.

According to Fitch Ratings, the country faces a total of $3.7bn of debt payments in the next two months till the end of June. About $700m in maturities are due in May and $3bn in June.

Fitch expects $2.4bn of the deposits and loans from China to be rolled over, reducing some pressure on the reserves. But it will be folly to expect China to lessen the burden so easily.

Pakistan has already taken all the agreed steps to unlock the funding, with external financing remaining the last hurdle. It is required to give an assurance that its “balance-of-payments deficit is fully financed for the fiscal year ending” to secure the next tranche.

Despite assistance from the UAE, Saudi Arabia and China, the financing gap of up to $2bn remains. Further, the IMF seems averse to combining the remaining two reviews with the ninth review and release the entire amount at one go to keep the fiscal authorities in check. This is in spite of the fact that the present facility will end in June.

The new conditions and the refusal to combine the reviews reflect the widening trust gap, which is not surprising considering the multiple deviations from the programme in the last four years. Pakistan will need another IMF programme once this one ends. For that, Islamabad needs to bridge the trust gap with the lender.

Published in Dawn, May 6th, 2023