Pakistan—IMF US$6b bailout

Pakistan will receive much-needed support as it grapples with a balance of payments crisis. The country has struggled to meet its external debts or pay for critical imports. Adding to the debt burden is the China-Pakistan Economic Corridor, a $62b infrastructure development plan, part of China’s US$1 trillion ‘One Belt, One Road’ Initiative.

But the International Monetary Fund (IMF) has agreed to lend US$6b to Pakistan. In return, the fund expects Pakistan will implement an economic reform package including fiscal consolidation to reduce public debt and a flexible, market-determined, exchange rate to restore competitiveness. This should improve the growth outlook and eventually reduce both elevated inflation and high unemployment.

The balance of payments crisis has sapped demand for Australian exports—despite the bilateral trade agreement, which has been in place since 1990 (Chart).  Still, the Department of Foreign Affairs and Trade (DFAT) suggests there are prospects for growth in trade and investment, particularly in education, agribusiness, mining equipment and clean energy technologies.