Many state-run firms are loss-making and the government has failed to make enough headway when it comes to their privatization as well as cutting bureaucratic red tape and improving ease of doing business.
The problems have put heavy pressure on the nation’s currency, with the Pakistani rupee falling by more than 20 percent in four big drops since December. Its foreign exchange reserves are also dropping rapidly. In September, they stood at $8.4 billion (€7.25 billion), barely enough to cover Pakistan’s debt payments due through the end of the year.
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When Pakistan has previously found itself in this situation, it has knocked on the doors of the IMF. But this time around, the nation’s leaders appeared to be a bit reluctant to approach the global lender, as it is likely to impose tough conditions on government policy, limiting Prime Minister Imran Khan’s vision of an Islamic welfare state.
“As the price for a deal with Pakistan, the IMF is likely to demand a further sharp tightening in fiscal and monetary policy as well as structural reforms aimed at raising more revenue and improving the business environment,” Gareth Leather, Senior Asia Economist at Capital Economics, said in a research note.
Khan, whose new administration took office in August, said on Wednesday that his government will seek help from “friendly countries” alongside any assistance provided by the IMF.
Khan has also promised to recover funds stashed abroad by corrupt officials, and embarked on a series of populist austerity measures such as auctioning luxury cars owned by the prime minister’s house and crowdfunding to build a dam in the country’s north. He has also vowed to turn around loss-making state-run enterprises and reform tax collection.