Challenging choices lie ahead, and the new government will face the strenuous task of navigating these challenges while prioritizing the long term economic wellbeing of the nation. The success of this endeavor will hinge not only on effective negotiations with the IMF but also on the government’s ability to implement necessary reforms and secure wider international support.

Pakistan is poised to approach the IMF once again, seeking a critical financial lifeline to navigate its challenging economic landscape. As it was reported on the Bloomberg, the nation is eyeing a fresh loan of at least $6 billion through the Extended Fund Facility (EFF), aiming for three year program duration. This move comes as the current nine month Stand by Arrangement, valued at $3 billion, nears its completion. While the existing program helped avert a potential default last summer, it appears that further assistance is necessary.

On the other hand, Pakistan faces a unique situation. Unlike the current program, its other creditors, encompassing multilateral, bilateral, and commercial entities, have been hesitant to extend a helping hand. This reluctance stems from the nation’s dwindling foreign exchange reserves and an uncertain outlook regarding its external sector, despite the ongoing IMF program. This hesitation is evident in the meager or insufficient $6.3 billion in foreign loans received during the first seven months of the current fiscal year, representing a mere 35.75% of the annual target of $17.6 billion.

This lack of enthusiasm from other creditors is understandable. They appear to be waiting for a more comprehensive, longer-term program between Pakistan and the IMF. Such a program would provide much-needed clarity on reform policies under the elected government, fostering confidence for medium- to long-term financial commitments. This sentiment is echoed by two of the three major global rating agencies, Moody’s and Fitch. They have recently emphasized the significance of a larger IMF package in securing Pakistan’s long-term economic stability and unlocking essential foreign inflows. These inflows are crucial to bridge the nation’s annual financing gap, estimated to be around $22-25 billion for several years.

The IMF, while acknowledging Pakistan’s potential request, remains cautious. A spokesperson expressed the Fund’s willingness to support the post-election government through a new arrangement, but it remains unclear if the Pakistani authorities have begun the necessary preparations for a swift negotiation. The new deal is expected to be more stringent than the current one, potentially requiring the government to implement tighter fiscal measures. These measures, under the ongoing program, have included cuts in public spending, increased taxes on businesses and individuals, higher borrowing costs, and rising energy prices. Additionally, unannounced import controls aimed at curbing dollar outflow have further exacerbated the situation. These combined factors have resulted in a shrinking economy and persistent inflation, making life particularly difficult for low-middle-income households.

Another crucial question remains: how far will the incoming government, likely a minority setup, be willing to go to secure these vital IMF funds? Given Pakistan’s precarious external position and the urgent need for financial support from multilateral and bilateral partners to stabilize and grow the economy, the government’s room for maneuver seems limited. It appears that tough and unpopular decisions are inevitable, regardless of the potential political repercussions.