Pakistan’s foreign minister says he hopes the country can renegotiate a deal with the IMF in response to the surge in global food and fuel prices, as mounting political unrest piles pressure on Shehbaz Sharif’s new government.
Officials are in talks with the IMF to resume lending under a $6bn loan programme agreed in 2019 but in limbo since a dispute with the previous government over energy subsidies. Pakistan is struggling with a shortage of foreign reserves that has prompted some analysts to warn that the country is at risk of defaulting on its foreign debts.
Bilawal Bhutto Zardari, who took over as foreign minister under Sharif last month, said the government would “abide” by the terms of the frozen IMF deal for the time being. But he hoped it could ultimately be renegotiated in light of the hardship caused by rising inflation in the wake of the Ukraine conflict.
“This is a pre-Afghanistan situation deal, this is a pre-Ukraine deal, this is a pre-pandemic deal and pre-current global economic trends,” he told the Financial Times at Davos. “In light of that it would be important for the government of Pakistan at some point to renegotiate with the IMF”.
Zardari said that the situation in Pakistan, which depends on imports of energy and staples such as wheat, has deteriorated to the point where people are going hungry. “This is already happening,” he said. “This is a daily concern.”
His comments came as the economic situation stokes domestic political turmoil in Pakistan. Sharif’s government is facing a growing challenge from ousted prime minister Imran Khan, who was removed from office in a no-confidence vote last month and is now pressing for early elections.
Pakistani authorities this week launched a crackdown on the former prime minister’s supporters, arresting hundreds of people and banning a march on Islamabad by Khan’s Pakistan Tehreek-e-Insaf party that was due to take place on Wednesday.
IMF assistance has in effect been suspended since Khan, while still in office earlier this year, reintroduced controversial fuel subsidies that the fund had sought to remove. But Sharif has so far declined to scrap them as Pakistanis struggle with the cost of living.
Zardari said he hoped the government would review and scale back the subsidy which might be a precondition for the resumption of IMF assistance. “Our economic situation in Pakistan is precarious,” Zardari said, calling inflation his “number one priority”.
Pakistan’s liquid foreign currency reserves with the central bank have fallen to about $10bn, enough to meet the cost of only two months of imports. Growing speculation that Pakistan will eventually be forced to follow Sri Lanka in defaulting has prompted a sell-off in the rupee, which has lost about 9 per cent of its value since early April.
Analysts warn that the economic pressures are exacerbating an increasingly ugly stand-off between Sharif and Khan, whose popularity has surged since his removal from office. The former celebrity cricketer claims, without evidence, that his ousting was the result of a “conspiracy” hatched by Sharif and the US.
Maleeha Lodhi, a former Pakistani ambassador to the US and the UN, said that Pakistan was in danger of falling into “an unprecedented and uncontrollable crisis”. “This could not have come at a worse time given Pakistan’s fragile economy,” she said.
Zardari dismissed concerns about the arrests of Khan supporters. “There have been some cases where activists have had some tiffs with the police,” he said. “But unlike in Mr Khan’s time, they’ve got access to the courts, more often than not got bail, and managed to go through the judicial process.”