The recent commitments from Pakistan’s allies to roll over $12 billion in bilateral debt have sparked renewed optimism for the approval of a critical $7 billion IMF bailout. This financial lifeline is expected to bolster the nation’s dwindling reserves and address its foreign financing needs. Yet, the reluctance of these allies to extend the loan maturity period highlights a growing wariness, even among friendly nations, towards Pakistan’s long-term economic prospects. As the country grapples with a severe liquidity crunch, the question arises: Can another IMF bailout truly provide the stability Pakistan desperately needs, or does the solution lie in more profound and politically challenging reforms?

The government likely exhaled a collective breath of relief after securing assurances from its allies—China, Saudi Arabia, and the UAE—to extend Pakistan’s bilateral debt of $12 billion for yet another year. These commitments come as a much-needed boost for Islamabad, which is in anticipation of the final nod for a $7 billion, 37-month loan arrangement with the IMF. Finance Minister Muhammad Aurangzeb, speaking after a parliamentary committee session, disclosed that the volume of debt rollovers will mirror that of the previous year. He mentioned that Pakistan has consistently extended its $12 billion in bilateral loans over the past few years, according to a Bloomberg report.

Aurangzeb emphasized that the IMF’s executive board is slated to convene before the month’s end to ratify a staff-level agreement (SLA) with Pakistan for the new loan program, aimed at fostering stability and inclusive growth. He reiterated his frequent communication with IMF officials, dismissing speculation that Pakistan’s loan program might be omitted from the next board meeting. The minister estimated Pakistan’s financial requisites for the next three years to range between $3 billion and $5 billion, assuring that the government would adeptly manage these resources. He also disclosed that the government has received offers from international commercial banks for concessional loans, which are currently under review, while dismissing high-interest loans.

A significant demand from the IMF is for Pakistan to ensure the rollover of its annual $12 billion debt obligation to its three principal bilateral benefactors: Saudi Arabia, China, and the UAE. Saudi Arabia has already extended $5 billion, China $4 billion, and the UAE $3 billion for a year. Under the new IMF program, these bilateral loans will be extended. Regarding the issue of independent power producers (IPPs), the minister proposed appointing an advisor in China to discuss the transition of coal power facilities to local coal, a process projected to span two to three years. He also mentioned that the government has hired an advisor in China for the issuance of Panda bonds.

In his briefing to the Senate Standing Committee on Finance and Revenue, the minister noted signs of economic growth and rising investor confidence, leading Fitch to upgrade Pakistan’s rating. He added that the State Bank of Pakistan has reduced interest rates and that a plan for rightsizing ministries and divisions is underway, beginning with five ministries.

Pakistan’s economy, plagued by a shrinking GDP, a balance-of-payments crisis, and soaring inflation, has seen some stabilization in recent months, largely due to an emergency $3 billion loan from the IMF. However, the short- to medium-term economic outlook remains precarious. The country requires nearly $25 billion annually to finance its substantial trade deficit and service its foreign debt, while its reserves stand at a mere $9 billion.

The new IMF program is anticipated to reinforce this fragile stability, but the pursuit of rapid and sustainable economic growth will likely remain out of reach for years, even if Pakistan embarks on the right path. Many, including policymakers, hold the belief that adhering to the IMF’s stringent conditions and passing its reviews equates to the much-needed structural reforms. This, however, is a misconception. Pakistan’s deeply entrenched economic issues require difficult and politically unpalatable reforms, far beyond the temporary reprieve offered by an IMF bailout. The IMF’s role is limited to ensuring that the country fulfills its external financial obligations; fostering economic growth or implementing comprehensive reforms in a client economy does not fall within the Fund’s purview.

Two decades ago, Pakistan’s economy was 18% the size of India’s; today, that figure has dwindled to just 9%, despite receiving five IMF bailouts during that period. This stark reality underscores the need for Pakistan to seek solutions beyond the temporary support of international bailouts to overcome its persistent economic challenges.

While the new IMF program may offer a temporary cushion, it is unlikely to deliver the sustainable economic growth Pakistan urgently requires. The nation’s economic challenges run deep, and they demand more than just adherence to IMF conditions. True recovery will require confronting and implementing difficult reforms that extend beyond the short-term relief of international bailouts. As Pakistan’s economic standing continues to shrink in comparison to regional peers, the need for a more comprehensive and long-lasting strategy becomes ever more apparent. The time has come for Pakistan to look beyond temporary fixes and embrace the tough choices necessary for a stable and prosperous future.