Pakistan announced on Thursday that it would need to endure some “transitional pain” after securing a new $7 billion relief package from the International Monetary Fund (IMF) aimed at stabilizing its fragile economy. Although the country has managed to avoid defaulting since last summer, it remains reliant on IMF bailouts and financial assistance from allied nations to manage its debt, which consumes half of its annual revenues.
“There will be transitional pain, but if this is to be our last IMF program, we must carry out structural reforms,” Finance Minister Muhammad Aurangzeb told News.
In its statement, the IMF confirmed an immediate disbursement of $1 billion. “The past year has brought a welcome return to economic stability in Pakistan,” said Nathan Porter, head of the IMF’s Pakistan mission. “The current challenge is to move beyond this stability to achieve stronger, sustained growth that benefits everyone more broadly and equitably,” he added.
The agreement, finalized in July, marks Pakistan’s 24th IMF program since 1958. It was reached in exchange for unpopular reforms, including reducing power subsidies and expanding the country’s limited tax base. Speaking at the United Nations General Assembly in New York, Prime Minister Shehbaz Sharif credited the success of the deal to “tremendous support” from Saudi Arabia, China, and the United Arab Emirates.
“In the final stages of negotiations, the IMF’s conditions were related to China’s support. The Chinese government’s backing during this period was invaluable,” Sharif noted just before the agreement was announced.
Last month, Aurangzeb said Pakistan was in talks to reprofile $12 billion in loans from bilateral lenders, including $5 billion from Saudi Arabia, $4 billion from China, and $3 billion from the UAE, for a period of three to five years. According to Porter, all three countries provided “significant financing assurances” beyond these commitments.
In reaction to the news, Pakistan’s stock exchange briefly surged to a record high before retreating. Economist Kaiser Bengali stated that while the deal would help Pakistan meet its immediate debt obligations, it doesn’t offer a long-term solution. “The only economic reforms we are being asked to implement involve increasing taxes. There is no progress on cutting government spending,” he told AFP.
By the end of 2023, Pakistan’s total debt had reached over $250 billion—equivalent to 74 percent of its GDP—with around 40 percent owed to external creditors. China remains Pakistan’s largest single foreign creditor, holding nearly $30 billion, followed by the World Bank with over $20 billion.
Last year, the country teetered on the brink of default due to a shrinking economy, political turmoil, the devastating 2022 monsoon floods, decades of mismanagement, and a global economic downturn. It was rescued by last-minute loans from friendly nations and an IMF package.
Pakistan’s protracted negotiations with the IMF led to the release of the latest tranche, which was conditioned on implementing reforms like raising household energy bills and improving tax collection. Despite having a population of over 240 million, only 5.2 million people filed income tax returns in 2022.
While acknowledging Pakistan’s progress in restoring economic stability, the IMF highlighted ongoing challenges, such as a difficult business environment, weak governance, and an oversized role of the state, which hinder investment and keep it low compared to similar economies.
