IMF doubts Pakistan's repayment capacity as support team arrives in Islamabad

• Pakistan’s capacity to repay debt subject to significant risks: IMF.
• Global lender says high risks could jeopardise policy implementation.
• Washington-based mission will arrive in Pakistan on May 16.

ISLAMABAD: The International Monetary Fund (IMF) has claimed that the crisis-hit and cash-strapped Pakistan faces debt-repayment challenges.

The development came hours after an IMF support team reached Pakistan on Friday to hold talks regarding the South Asian nation's request for a fresh bailout package under the Extended Fund Facility (EFF).

In its staff report on the country issued earlier this month, the Washington-based lender said: “Pakistan’s capacity to repay the fund is subject to significant risks and remains critically dependent on policy implementation and timely external financing.”

“Exceptionally high risks — notably from delayed adoption of reforms, high public debt and gross financing needs, low gross reserves and the SBP’s net FX derivative position, a decline in inflows, and sociopolitical factors—could jeopardise policy implementation and erode repayment capacity and debt sustainability,“ read the report.

It further said that restoring external viability was critical to ensure Pakistan’s capacity to repay the fund, and hinges on strong policy implementation, including, but not limited to, external asset accumulation and exchange rate flexibility.

Geopolitical instability is an additional source of risk, even as uncertainty surrounding global financial conditions has declined somewhat since the last review, it added.

The global lender noted that the country needed gross financing worth $123 billion during the next five years, adding that Pakistan was expected to seek $21 billion in fiscal year 2024-25 and $23 billion in 2025-26.

The report further said that the crisis-hit country is expected to seek $22 billion in 2026-27, $29 billion in 2027-28 and $28 billion in 2028-29.

IMF mission will arrive in Pakistan 'next week'

According to sources privy to the matter, a support team of the global lender will discuss the first phase of the next long-term loan programme with the country's financial team.

Moreover, they said that the advance party had reached Pakistan for talks while the IMF mission would arrive on May 16.

The team will receive data from different departments and will also discuss the upcoming budget for the fiscal year 2025 (FY2025), with the Ministry of Finance officials.

The sources also revealed that the team would stay in Pakistan for more than 10 days.

Pakistan sought a next bailout package in the range of $6 to $8 billion for the three years period under the EEF with the possibility of augmentation through climate financing, The News reported last month.

Last week, Reuters reported that the mission would discuss the FY25 budget, policies, and reforms under a potential new programme for the welfare of all Pakistanis.

"Accelerating reforms now is more important than the size of the program, which will be guided by the package of reform and balance of payments needs," the IMF statement had said.

Earlier, Finance Minister Muhammad Aurangzeb, while speaking to Reuters, said that "Pakistan hopes to agree" on the contours of a new IMF loan in May.

“We expect the IMF mission to be in Islamabad around the middle of May — and that is when some of these contours will start developing,” he added.

The finance czar declined to outline what size programme the government hoped to secure, though Pakistan is expected to seek at least $6 billion.

Aurangzeb added that once the IMF loan was agreed, Pakistan would also request additional financing from the global lender under the Resilience and Sustainability Trust.