IMF Slaps Pakistan with 11 New Conditions for Bailout, Warns of India Tensions
The International Monetary Fund (IMF) has imposed 11 new conditions on Pakistan for its bailout program's next tranche. The IMF highlighted that ongoing tensions with India could jeopardize the program's fiscal, external, and reform objectives. Additionally, the IMF and World Bank criticized Pakistan's energy policies for contributing to circular debt and cited bad governance as a risk factor, urging significant reforms for continued financial support.
Unpacked:
The IMF usually requires Pakistan to implement fiscal austerity measures, such as raising taxes, reducing subsidies, and tightening monetary policy. Structural reforms in tax administration, energy sector governance, and public spending are also common requirements, aimed at stabilizing the economy and ensuring the sustainability of financial support.
Pakistan's energy sector faces issues like inefficiencies, subsidies, and poor revenue collection, leading to a buildup of unpaid debts—known as circular debt. This debt cycle strains public finances and hampers investment in energy infrastructure, prompting criticism from the IMF and World Bank.
Tensions with India can deter investment, increase military spending, and put pressure on Pakistan’s external finances. The IMF warns that such instability undermines the fiscal and reform goals of bailout programs, complicating efforts to achieve macroeconomic stability.
Pakistan has turned to the IMF 23 times since joining in 1950, often due to recurring fiscal deficits, external imbalances, and slow progress on structural reforms. This frequent reliance highlights persistent economic vulnerabilities and challenges in achieving sustainable growth.