What are the risks if Pakistan fails to secure IMF bailout funds?

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Pakistan Faces Significant Risks of Debt Default Without IMF Funds

Failure to secure crucial bailout funds from the International Monetary Fund (IMF) places Pakistan at a substantial risk of a debt default. The nation is currently grappling with an acute balance of payment crisis, with its currency reserves barely sufficient to cover one month's imports. The urgency is amplified by the impending expiration of the US$6.5 billion Extended Fund Facility (EFF) on June 30, leaving a narrow window for the IMF to review and potentially release the outstanding US$2.5 billion tranche.
Impending Expiration of Extended Fund Facility

The US$6.5 billion Extended Fund Facility (EFF), initially agreed upon in 2019, is set to expire in five days, on June 30. This deadline creates a critical juncture for Pakistan to secure the release of the remaining US$2.5 billion from the IMF. The IMF's review process is essential for unlocking these funds, which have been stalled since November.
Risk of Debt Default Amidst Balance of Payment Crisis

Analysts warn that Pakistan's acute balance of payment crisis could escalate into a full-blown debt default should the IMF funds not be secured. With foreign exchange reserves critically low, the country's ability to meet its international financial obligations is severely compromised. The absence of IMF support further jeopardises Pakistan's capacity to manage its existing debt burden.
Crucial Role of IMF Funds in Unlocking Other Financing

The IMF bailout package is not merely a standalone financial injection; it serves as a critical enabler for Pakistan to access other bilateral and multilateral financing. Securing the IMF funds is a prerequisite for unlocking additional loans and support from other international partners, which are vital for stabilising the debt-ridden economy. The stalled tranche since November has already hampered these broader financing efforts.
Revised Budget as a Last-Ditch Effort

In a concentrated effort to meet IMF conditions and secure the bailout, Pakistan's parliament recently approved a revised budget for 2023-24. This revised fiscal plan includes new taxes and expenditure cuts, introduced by Finance Minister Ishaq Dar, following the IMF's mid-June expression of dissatisfaction with the initial budget proposal. The government also announced measures such as raising a petroleum levy and lifting import restrictions, aimed at satisfying the IMF's fiscal tightening requirements.

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What are the risks if Pakistan fails to secure IMF bailout funds?

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