Pakistan set to dodge short-term default; political turmoil grows

Pakistan needs financial help to deal with "overwhelming" floods, its foreign minister said, adding that he hoped financial institutions such as the IMF would take the economic fallout into account

Pakistan is poised to evade a near-term default amid expectations the International Monetary Fund (IMF) will resume its $6 billion bailout program, but a rally in the nation’s assets may fizzle out amid escalating political tensions.

Columbia Threadneedle Investments, Tellimer Ltd. and Natixis SA predict Pakistan will win a loan approval from the IMF board when it meets on Monday, paving the way for the release of $1.2 billion in immediate funds. Two days later, focus will shift to a court hearing where former premier Imran Khan has been asked to appear as he battles a string of legal troubles. 

But Pakistan needs financial help to deal with “overwhelming” floods, its foreign minister said on Sunday, adding that he hoped financial institutions such as the IMF would take the economic fallout into account.

Unusually heavy monsoon rains have caused devastating floods in both the north and south of the country, affecting more than 30 million people and killing more than 1,000.

“I haven’t seen destruction of this scale, I find it very difficult to put into words...it is overwhelming,” said Pakistan’s Foreign Minister Bilawal Bhutto-Zardari in an interview with Reuters, adding many crops that provided much of the population’s livelihoods had been wiped out.

“Obviously this will have an effect on the overall economic situation,” he said.

The South Asian nation was already in an economic crisis, facing high inflation, a depreciating currency and a current account deficit.

The IMF board will decide this week on whether to release $1.2 billion as part of the seventh and eighth tranches of Pakistan's bailout programme, which it entered in 2019. Bhutto-Zardari said the board was expected to approve the release given an agreement between Pakistani officials and IMF staff had already been reached and he hoped in coming months the IMF would recognise the impact of the floods.