An IMF team left Pakistan on Friday after crisis talks with the government failed to deliver a deal on financial aid that would help the South Asian country avoid economic collapse.
After months of deadlock, a delegation of the International Monetary Fund arrived last week for final negotiations with a government that fears the political consequences of imposing bailout conditions in an election year.
Pakistan’s economy is suffering, beset by a balance-of-payments crisis as it tries to deal with high external debt amid political chaos and deteriorating security.
Inflation has skyrocketed, the rupee has depreciated and the country can no longer import, causing industry to decline dramatically.
“Substantial progress was made during the mission on policy measures to address domestic and external imbalances,” the IMF said in a statement.
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“Virtual discussions will continue in the coming days to finalize the implementation details of the policy.”
The IMF is demanding that the nuclear-armed nation boost its low tax base, end tax exemptions for its export sector, and artificially raise gasoline, electricity and gas prices to help low-income families.
Prime Minister Shehbaz Sharif had earlier called the terms for the $1.2 billion loan installment “beyond imagination”.
Finance Minister Ishaq Dar addressed the country after the IMF team left the country on Friday morning, saying talks had been “completed successfully” and a draft memorandum on broadly agreed policies had been shared by lenders with the government.
He said petrol prices would rise by about four percent and additional taxes would be imposed, without giving further details.
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Economic analyst Abid Hasan, a former World Bank adviser, said “there will be disappointment in the business community”.
“The only way stability can be achieved is through a deal. This adds to the uncertainty,” he told AFP in the capital Islamabad.
– ‘Dear Grandma’-
Years of financial mismanagement and political instability have crippled Pakistan’s economy – exacerbated by the global energy crisis and floods that have devastated a third of the country.
After months of searching for an alternative, the government began bowing to IMF pressure in mid-January, loosening controls on the rupee to curb the massive black market in the US dollar – a move that sent the currency plunging to a record. moderate. The authorities also increased the price of petrol by 16 percent.
Rana Sadiq, a 65-year-old real estate worker, had to sell his car and travel by motorbike to save money.
“Gas bills, electricity bills, petrol prices, fruit and vegetable prices have all doubled in the last few months,” he told AFP from a market in Islamabad.
“I can’t meet the monthly expenses. Before, my children ate fruit every day – now I bring home fruit once a week.”
Batool Zehra, who runs a baking business from her home in Lahore to support her family, is struggling to make ends meet as prices rise.
“The ingredients are very expensive now… and if they are available. I can’t complete the order because half the time I know there is no gas,” he told AFP.
“I don’t think I will be able to continue the business. But I also don’t know how my family would be without this extra income.”
– Import backlog –
On Thursday, the central bank released data that foreign exchange reserves had fallen by $170 million in a week, only $2.9 billion last Friday.
Since January, the world’s fifth most populous country has stopped issuing letters of credit, except for essential food and medicine, resulting in imports of raw materials that the country cannot afford.
The logjam coupled with the devaluation of the rupee has led to a sharp decline in manufacturing, including textiles and steel, and construction projects.
“This situation has given rise to fears that the construction industry will soon shut down, leaving thousands of workers unemployed,” Syed Ashfaq Hussain, head of the Pakistan Constructors Association, told AFP.
While the IMF cash injection is not enough to save Pakistan itself, the government hopes it will boost confidence and open the door for friendly countries such as Saudi Arabia, China and the UAE to lend more.
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“We will get temporary relief but not a permanent solution for the economy. More reforms are needed at the government level,” a senior government official told AFP.
Pakistan has brokered and violated more than a dozen IMF deals in the last decade as parties rejected agreements that undermined political stability.
Political analyst Michael Kugelman, director of the South Asia Institute at the Wilson Center in Washington, previously warned that “barring difficult large-scale reforms, the next crisis may be imminent”.