IMF warns of risks to economy despite stabilisation

PHOTO: REUTERS/FILE

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ISLAMABAD:

The International Monetary Fund said on Saturday that Pakistan’s economy has stabilised but warned that serious risks have emerged to Islamabad’s debt sustainability and its ability to pay back the IMF loans.

The caretaker government has managed to maintain economic stability on the back of decisive policy efforts, acknowledged the IMF in its staff report released on Saturday. The caretaker government deserves credit for its steadfast implementation, it added.

The IMF has underlined that the caretaker government was staying in office beyond its constitutional period of 90 days.

“Although controversial initially, as it went beyond the constitutional 90-day limit from the dissolution of parliament, the Election Commission argued that the extension was needed to redraw constituency boundaries after the outgoing government’s decision to base elections on the new 2023 Census,” reads the report.

The global lender added that Pakistan’s medium-term challenges remain acute, and the current policy efforts need to continue to address them in a sustainable manner. The report also highlighted governance and transparency risks emanating from the new Sovereign Wealth Fund and the Special Investment Facilitation Council.

“Elevated gross financing needs continue to pose high risks to debt sustainability, particularly as fiscal and reserve buffers have been depleted,” said the IMF.

It stated that timely disbursements of committed bilateral and multilateral support were critical in the period ahead. The IMF said that the gross financing needs materialisation was facing very high risks, including because of the significant sovereign exposure of domestic banks and the scope for policy flexibility is extremely limited.

The overall risk of sovereign stress was also high, reflecting a high level of vulnerability from elevated debt and gross financing needs and low reserve buffers. Medium-term risks to debt sustainability are also assessed as high, which include uneven program implementation, political risks, and access to adequate multilateral and bilateral financing in view of the high gross financing needs.

“Policy slippages, insufficient financing or elevated gross financing needs, realisation of contingent liabilities and downward risks to the baseline could all undermine the narrow path to debt sustainability.