Pakistan Seeks Additional $2 Bn from IMF to Address Climate Change Impact

Islamabad, October 21, 2024: Pakistan is seeking an additional $2 billion in financial assistance from the International Monetary Fund (IMF) to combat the growing challenges of climate change, according to reports by ARY News. The country’s Finance Minister, Muhammad Aurangzeb, is expected to make the formal request during the upcoming IMF and World Bank Annual Meetings in Washington, DC, scheduled for October 21-26.

Aurangzeb will lead a delegation of key financial officials, including the finance secretary, economic affairs secretary, and the State Bank of Pakistan governor, to discuss this additional funding. Sources indicate that the request is part of Pakistan’s broader strategy to manage the economic fallout from climate-related disasters that have plagued the nation in recent years.

IMF’s Concerns on Debt Repayment

Previously, the IMF raised alarms over Pakistan’s capacity to manage its external debt, categorizing the country’s financial situation as “fragile.” According to the IMF, Pakistan’s external financing requirements under the Extended Fund Facility (EFF) program are expected to reach $62.6 billion over the next three years. This figure is anticipated to rise to $110.5 billion over a five-year period, spanning from 2024-2029.

The funding needs for Pakistan are projected to be $18.8 billion for the current fiscal year, escalating to $20.1 billion in 2025-2026, and $23.7 billion in 2026-2027. The demands will remain high even after the program concludes, requiring around $24.6 billion in 2027-2028 and $23.2 billion in 2028-2029.

Risks to Debt Sustainability

The IMF has expressed significant concerns over Pakistan’s ability to manage its debt obligations, noting that the country’s repayment capacity is subject to “major risks.” These risks are exacerbated by high public debt, low reserves, and sociopolitical factors. The IMF’s warning emphasized that Pakistan’s debt sustainability and repayment ability hinge heavily on effective policy implementation and securing timely external financing.

“Exceptionally high risks notably from high public debt and gross financing needs, low gross reserves, and socio-political factors could jeopardize policy implementation and erode repayment capacity and debt sustainability,” the IMF stated.

Pakistan’s Ongoing EFF Program

In September, the IMF’s Executive Board approved Pakistan’s 37-month Extended Fund Facility (EFF) agreement, worth approximately $7 billion. However, with the new request for an additional $2 billion, Pakistan aims to secure more resources to mitigate the effects of climate change, which has led to devastating floods, heatwaves, and other environmental challenges.