The United States administration has urged Pakistan to continue working with the International Monetary Fund, especially on reforms that would improve the country’s business environment.
“We believe that doing so – and the IMF believes this – will make Pakistani business more competitive, will also help Pakistan attract high-quality investment,” US State Department spokesperson Ned Price said at the weekly press briefing on Wednesday.
Pakistan has been hosting an IMF mission since early February to negotiate the terms of a deal, including the adoption of policy measures to manage its fiscal deficit ahead of the annual budget due around June.
The funds are part of a $6.5 billion bailout package the IMF approved in 2019, which analysts say is critical if Pakistan is to avoid defaulting on external debt obligations.
The IMF deal would unlock other bilateral and multilateral financing avenues for Pakistan to shore up its foreign exchange reserves, which have fallen to just four weeks’ worth of import cover.
But more value than the potential investment dollars are the technologies, are the market connections and management systems that accompany foreign investment, the US State Department spokesperson added.
He went on to add that they improve the “competitiveness” of partnering Pakistani firms, fueling economic growth that increases employment and household incomes.
Islamabad has met most of the lender’s demands to clear the review. The last one yet to be fulfilled on the list is an assurance on external financing to fund its balance of payment gap for the current fiscal year, which ends on June 30.
Long-time ally China is the only country that has announced refinancing of a $2 billion loan, and State Bank of Pakistan has already received $1.2 billion of that amount.
Pakistan had to complete a series of prior actions demanded by the IMF, which included reversing subsidies in the power, export and farming sectors, a hike in energy and fuel prices, a permanent power surcharge, jacking up the key policy rate, a market-based exchange rate, and raising over 170 billion rupee ($613.17 million) in new taxation through a supplementary budget.
The rupee depreciated 1.19% against US dollar in inter-bank trading in Thursday’s opening session, but recovered almost half of its losses by afternoon. It has lost around 20% of its value so far this year, extending a near 30% drop in 2022.
The fiscal adjustments have already fuelled 50-year record high inflation, which hit 31.5% year-on-year in February.
“We believe that by continuing down this path and continuing to make the necessary decisions – economic decisions – that Pakistan can put itself, with the support of the international community, of course with the support of the United States, on a path to sustainable growth,” Price said.
When asked whether the US was concerned about Pakistan’s economic crisis, the US State Department spokesperson reiterated that it was a partner to the country.
“We are a partner to Pakistan. We have been there for Pakistan since its independence. We seek a stable, peaceful, and prosperous Pakistan. We know that the Pakistani people are facing tremendous hardship, including economic hardship. We continue to look for ways in which we can support the Pakistani people to rebuild and to deepen the economic partnership that has existed with the United States over the course of decades now,” he said.
Price added that the administration was working their Pakistani partners. Of course, he said Pakistan in turn was also working with international financial institutions, the IMF, to put itself on a sustainable growth path.
“But when it comes to economic challenges, when it comes to security challenges, when it comes to political challenges, the United States is ready and able to continue to be a partner to the people of Pakistan and to our Pakistani counterparts as well.”
Moreover, he said that the US was aware of reports about clashes in Lahore ahead of a planned rally by former prime minister Imran Khan.
“We encourage all to exhibit restraint. We offer our condolences to the families of those who lost their lives and wish a speedy recovery to those who were injured in this,” he said.
(With input from Reuters)
