THE IMF Executive Board’s stress on the importance of “vigilant monitoring” of its new $7bn programme’s implementation, and “robust contingency planning” to safeguard its success is a reflection of two concerns. One, in spite of the recent economic recovery under the last $3bn Stand-by Arrangement, Pakistan’s vulnerabilities and structural challenges remain formidable. The business environment poses problems amid weak governance and the state’s outsized role, hindering investment. Likewise, the tax base remains too narrow to ensure tax fairness and fiscal sustainability or meet large development spending needed to tackle poverty. Without concerted adjustment alongside prudent spending management and sustained reforms, Pakistan risks falling further behind its peers. Two, Pakistan’s credibility when it comes to pursuing programme policies and ensuring macroeconomic sustainability through consistent policy implementation remains suspect in the eyes of its creditors and development partners — despite the successful implementation of the SBA that saved it from default.

Therefore, IMF directors have emphasised “the criticality of sustained programme implementation” and “steadfast execution of the planned continued consolidation in the FY25 budget” in a statement after approving the loan this week. Some of them noted that “there is no room for policy slippages without undermining debt sustainability”. The new programme mandates policies to help Pakistan move away from its state-led growth model to private sector-led growth by strengthening the business environment and ensuring a more even playing field. Other priorities include reforming SOEs, removing trade barriers and market distortions, reinforcing governance frameworks, strengthening energy sector viability, and building climate resilience. Indeed, the agenda for Pakistan’s politically beleaguered rulers is huge. It cannot wriggle out of it without endangering the recent, fragile stability. The government’s resolve to stick to the IMF-mandated agenda will be tested every time the lender reviews its progress before releasing the next tranche. Other multilateral and bilateral creditors will also be watching Islamabad’s performance very closely. The prime minister has repeatedly pledged to make this programme the last bailout from the IMF. Other countries like India have pulled this off by restructuring their economies. Can we do so? The jury is out.

Published in Dawn, September 29th, 2024