According to economist, financial analyst and chairman of the Pakistan Freedom Movement, Haroon Khawaja, "The IMF is a financial institution, and whenever you go to any bank first of all they will check your financial vitals. They will check your liquidity situation and most importantly they will check your ability to pay back. The people who work at a bank are financial specialists, economists and technocrats who lend the money not so that it can sink, but so that it can be received back. If you look at it from a specific, technocratic lens then right now the IMF is thinking: If we give Pakistan all this money, how will we get it back?"
Earlier the IMF had presented certain demands to Pakistan such as increasing the cost of electricity, gas and diesel. The country implemented a series of policy measures including increased taxes, higher energy prices and increasing interest rates to the highest in 25 years to unlock funding from its stalled $7 billion loan program.
However, despite the implementation of the measures, the IMF has not yet given a green light to the loan bailout.
Meanwhile rating agency Fitch Ratings warned in its latest report on the country’s economic situation that default is a real possibility in Pakistan. The probability is high, but it is less than 50%. The report explained that if the IMF funding does not materialize, it’s quite possible that the currency will see a further depreciation.
Global and Regional Shift
In an interview with a local digital media platform, analyst Haroon Khawaja explained that the IMF may also be withholding Pakistan's bailout program because of the unfolding global and regional picture, especially concerning China.
"In the last four to six weeks we have seen a strong anti-China rhetoric in the US. The spy balloon incidents were all over the media, which later the US said it could not prove or disprove of Chinese involvement over the balloon incident. But what is actually happening is that China is becoming a global leader at the expense of the US's aim to have control over the whole world," Khawaja said.
The analyst also explained that Belarus, Russia's close ally is working on improving ties with Iran, which is Pakistan's neighbor. Furthermore, Russia and Ukraine's ongoing conflict is another important regional development.
"I think the IMF wants to see where Pakistan stands in all of these regional developments. It wants to see whose side Pakistan is on," Khawaja said.
Earlier this week, diplomatic circles in Washington said that Pakistan was “really close” to signing the IMF deal and it could be finalized in the next few days. Last week, Finance Minister Ishaq Dar also expressed similar hopes while talking to journalists in Islamabad.
Nevertheless, even within Pakistan's higher political circles the hopes for the IMF bailout seem to be polarized.
During a visit to Washington last week, Foreign Minister Bilawal Bhutto Zardari expressed frustration at the bailout delay, saying, "The cherry on the cake is the negotiations with the IMF, as ever ongoing and still not concluded and that uncertainty also has economic consequences."
He asked all international financial institutions to "provide relief to our people," adding that the country’s economic situation was "nothing short of a disaster," particularly for the poor.
According to FM Bhutto Zardari the country is facing consequences of last year’s catastrophic flooding and increased terrorism but the IMF is delaying release of funds which aim to help the most vulnerable civilians.
The foreign minister also mentioned that Pakistan is now housing some 100,000 Afghans since the US exited Afghanistan and the Taliban came to power. Providing housing and care to these Afghan refugees is also taking a toll on the country's economy.
Lack of Trust
"If I was a board member on the IMF's managing team I would be thinking right now that I am dealing with Pakistan but not once, not twice but multiple times as soon as I loan the money instead of increasing the price of petrol by Rs10 the government decreases the petrol price by Rs50," Khawaja said.
He also spoke about how within Pakistan the most popular opposition party PTI is pushing for early elections, but the current government of Shahbaz Sharif doesn't want the elections to take place.
"So what if tomorrow I give them the money and the current government decreases the petrol price by Rs50 in order to leverage this in their favor in the upcoming elections, to win the public's votes, or if it loses then it will set up the loan as a minefield for the winning party. Hence, my loan then becomes a political tool for the governments within the country," according to Khawaja.
The analyst concluded by saying that in his opinion, the IMF bailout program will not take place anytime soon for Pakistan.
"It is pretty clear that the IMF would prefer to deal with a stable government. The preferred method would be to conduct elections and whoever wins, be it PML-N, PPP or PTI they bring in the mandate and conclude this deal," he stressed.