IMF Resumes Bailout for Pakistan Caught in 'Belt and Road Debt Trap'

Photo by Bloomberg News

[Asia Economy Reporter Yujin Cho] The International Monetary Fund (IMF) has decided to resume the $6 billion bailout fund that had been on hold for Pakistan, which is suffering financial difficulties due to excessive debt from China's Belt and Road Initiative, Bloomberg reported on the 22nd (local time).

The IMF stated in a press release that it has reached an agreement on financial support for Pakistan and the Pakistani government's reform measures.

This agreement will take effect after final approval by the IMF Board of Directors. Before the IMF Board's final approval, the Pakistani government must implement self-help measures such as subsidy reductions and tax revenue increases.

The Pakistani Ministry of Finance said, "This measure will remove much uncertainty."

Pakistan agreed to receive a $6 billion bailout from the IMF in July 2019 but only received $2 billion last year.

Previously, Pakistan experienced an economic crisis due to a surge in debt and foreign currency shortages from participating in the Belt and Road infrastructure projects led by China.

Over the past eight years, Pakistan borrowed costs from China to build power plants, roads, and railways, and as the debt grew to an unmanageable level, it applied for IMF bailout funds.

The power generation facilities have increased to an excessive level, forcing the government to provide subsidies even when the facilities are not operational, worsening the debt crisis.

According to global economic data company CEIC, as of March this year, Pakistan's external debt has risen to $116.3 billion, and the fiscal burden has increased further due to the COVID-19 pandemic last year.

With the demand decline caused by the COVID-19 pandemic and the rise in global raw material prices, Pakistan's economy is suffering from the worst inflation in 70 years.

Pakistan's inflation rates for last year and this year (as of the end of October) reached 9.74% and 9.2%, respectively. The economic growth rate, which had been growing over 5% annually, was only 0.99% and 0.53% in 2019 and 2020, respectively.

This content was produced with the assistance of AI translation services.