The International Monetary Fund\u2019s (IMF) criticism of Pakistan\u2019s latest budget suggests chances are rising that the lender will opt not to deliver long-awaited aid before its bailout programme finishes at the end of June, Bloomberg reported. \u201cThis would cause a severe dollar shortage in the first half of the fiscal year that starts in July, and possibly for longer \u2014 significantly raising the odds of default, Bloomberg economist Ankur Shukla said in the report, Pakistan Insight. \u201cIt would also raise the prospect of much lower growth, and higher inflation and interest rates than we currently anticipate in fiscal 2024.\u201d The IMF criticised the budget for not taking enough steps to broaden the tax base and for including a tax amnesty. The country\u2019s foreign currency reserves currently stand at $4 billion. With at least around $900 million in debt that must be repaid this month, the reserves will fall by June-end unless the IMF aid comes. Between July-December, Pakistan must repay an additional $4 billion, which cannot be rolled over. \u201cWith foreign exchange reserves likely below $4 billion at the start of fiscal 2024, the default seems highly likely,\u201d the report said. \u201cWithout any IMF programme, the options for fresh external funding will likely be very limited.\u201d It said that negotiations with the IMF on any new bailout aren\u2019t likely to start until after elections in October. “Reaching an agreement will take time. Any actual aid disbursement from the IMF under a new programme will not happen until December.” In the meantime, the country will need to conserve dollars by limiting import purchases \u2014 and keeping a current account balance in surplus\u2014 to have any hope of being able to meet its obligations. It will also need to seek assistance from friendly nations to avert a default in the first half of fiscal 2024. The report said Pakistan\u2019s economy will likely be hit hard if the IMF doesn\u2019t deliver aid by June-end. The authorities will have to keep import restrictions in place. The State Bank of Pakistan will also likely raise rates above the current level of 21% to further curb demand for imports and conserve foreign exchange reserves, it added. \u201cOur base case currently is that the SBP will likely remain on hold through December (but that assumed the IMF aid coming in by June-end).\u201d Continued import restrictions and a weaker rupee would lead to higher inflation in fiscal 2024 than currently anticipated. \u201cWe currently expect inflation to average 22%. Higher borrowing costs and restrictions on imports of raw materials would hit production further. Higher inflation would damp consumption,\u201d it added. The report said if IMF aid doesn\u2019t come this month, the growth will be much weaker in fiscal 2024 than the current forecast of 2.5%. \u201cHigher rates will also increase the government\u2019s debt servicing costs. The government currently plans to spend half of the fiscal 2024 budget on debt servicing.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
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