On Thursday, Pakistan's government announced that it would need to endure "transitional pain" following the International Monetary Fund's (IMF) approval of a new $7 billion relief package aimed at stabilizing its faltering economy. While the nation's economy has shown signs of stabilization since narrowly avoiding default last summer, it remains heavily reliant on IMF bailouts and support from friendly countries to manage its substantial debt, which consumes nearly half of its annual revenues.

Finance Minister Muhammad Aurangzeb spoke to local broadcaster Geo News, stressing the necessity for structural reforms to ensure this program is the last of its kind. The IMF indicated that it would provide an immediate disbursement of approximately $1 billion as part of this three-year loan agreement, which mandates sound policies and reforms to bolster Pakistan's economy for more inclusive and resilient growth.

The deal, which marks Pakistan's 24th payout from the IMF since 1958, comes with challenging conditions, including cuts to power subsidies and efforts to broaden the country’s low tax base. Prime Minister Shehbaz Sharif acknowledged the vital support from Saudi Arabia, China, and the UAE during negotiations, particularly highlighting China's role in securing the deal.

Despite the immediate relief, economists warn that the agreement only addresses short-term debt repayments without tackling deeper issues. Kaiser Bengali, a prominent Pakistani economist, noted that the primary reforms demanded by the IMF focus on increasing taxes rather than reducing government expenditures, raising concerns about the long-term viability of these measures.

By the end of 2023, Pakistan's total debt had reached over $250 billion, or 74% of its GDP, with external creditors holding a significant portion. The IMF has recognized some progress in Pakistan's efforts to restore economic stability, but it cautioned that formidable vulnerabilities and structural challenges persist, including a difficult business environment and weak governance.

As the government grapples with these issues, the implications of the IMF's package and the required reforms will be closely monitored by both local and international stakeholders, highlighting the ongoing struggles of Pakistan's economy.