The International Monetary Fund (IMF) has expressed concerns over Pakistan’s ability to repay its external debt, highlighting it as “fragile”. According to the IMF, Pakistan’s external financing requirements are projected to reach USD 62.6 billion over the next three years under the Extended Fund Facility (EFF) program. This amount is expected to increase to USD 110.5 billion over a five-year period, from 2024-2025 to 2028-2029. Pakistan’s external funding needs are estimated to be USD 18.813 billion for the current fiscal year, with numbers increasing to USD 20.088 billion in 2025-2026 and USD 23.714 billion in 2026-2027. Even after the EFF program concludes, finance demands will continue to be high, with USD 24.625 billion required in 2027-2028 and USD 23.235 billion in 2028-2029. This has raised concerns about Pakistan’s ability to secure additional loans from foreign financial institutions.
The IMF issued a warning, stating that Pakistan’s ability to repay debts is exposed to “major risks” and greatly depends on the implementation of policies and timely external financing. With the purchases related to the request, the Fund’s exposure would reach Special Drawing Rights (SDR) 6,816 million (336 per cent of quota) by September 2024. The IMF highlighted “exceptionally high risks” stemming from high public debt and gross financing needs, low gross reserves, and sociopolitical factors that could jeopardise policy implementation, erode repayment capacity, and threaten debt sustainability. Restoring fiscal and external viability is crucial to ensure Pakistan’s capacity to repay the IMF, contingent upon strong and sustained policy implementation, fiscal consolidation, external asset accumulation, and decisive reforms promoting stronger and more resilient economic development.
In response to these challenges, on September 25, the Executive Board of the IMF approved Pakistan’s 37-month Extended Fund Facility (EFF) agreement valued at approximately USD 7 billion. This agreement is aimed at providing financial support to Pakistan to address its economic challenges and improve its debt sustainability. The EFF program will help Pakistan to implement necessary reforms to strengthen its economy, enhance policy implementation, restore fiscal and external viability, and improve its capacity to repay debts, thus mitigating the risks highlighted by the IMF.
It is essential for Pakistan to focus on implementing the IMF-supported reforms and policies to overcome its debt burden and ensure sustainable economic growth. Strong and sustained policy implementation, fiscal consolidation, external asset accumulation, and decisive reforms are crucial for Pakistan to enhance its debt repayment capacity and achieve long-term economic stability. By adhering to the conditions of the EFF program and working towards improving its economic fundamentals, Pakistan can address the concerns raised by the IMF and secure its financial future. This will require a concerted effort from the government and policymakers to implement effective reforms and policies aimed at strengthening the economy and ensuring debt sustainability.
