Pakistan is implementing stringent measures to secure a $1.1 billion loan tranche from the International Monetary Fund (IMF) as part of a broader $7 billion bailout package approved in September 2024. This financial support is crucial for the country, which has been grappling with severe economic challenges, including high inflation and dwindling foreign reserves.

The Pakistani government has committed to significant reforms, including overhauling its agriculture income tax system and transferring certain fiscal responsibilities to provincial governments. These reforms are aimed at broadening the tax base and enhancing revenue collection.

To qualify for the IMF assistance, Pakistan has raised additional taxes and increased electricity prices by up to 51%. These steps are part of a broader strategy to achieve macroeconomic stability and reduce fiscal risks associated with state-owned enterprises.

Unlike previous agreements, this program includes conditions that directly impact provincial budgets, requiring them to align their agricultural tax rates with federal rates by January 2025. This integration aims to create a more cohesive fiscal strategy across all levels of government.

Pakistan's economy has been under strain for several years, with inflation rates peaking at nearly 38% in early 2023. Foreign currency reserves fell to critically low levels, prompting urgent action to prevent a sovereign default. The recent measures have helped boost reserves to approximately $8 billion, but experts warn that reliance on external loans cannot be sustained without substantial structural reforms.

Inflation: While inflation remains high, it has begun to decline from its peak. Economists project it could stabilize around 20% by mid-2024 if current policies are maintained.

Growth Rate: The IMF projects modest growth of about 2% for the fiscal year 2024, contingent on the successful implementation of reforms and stabilization efforts.

Despite the positive steps taken, economists express scepticism about the sustainability of Pakistan's economic recovery. Concerns include:

Debt Sustainability: Pakistan's external debt obligations exceed $130 billion, raising questions about its ability to service these debts without further loans.

Need for Structural Reforms: Experts argue that without genuine growth initiatives—such as increasing exports and fostering productive employment—the country may continue to face economic instability.

The immediate release of the $1.1 billion tranche marks a critical step for Pakistan's economy, the country must navigate significant structural challenges and ensure that reforms lead to sustainable growth rather than continued dependency on external financing.