Islamabad, Pakistan – When Pakistan reached yet another staff-level agreement (SLA) with the International Monetary Fund (IMF) in July for a $7bn, three-year loan programme, it was hailed as a lifeline for both the government, which had assumed office only months before, and the country itself, which was reeling under a severe economic crisis.

However, two months later, Pakistan is still waiting for the United States-based global lender’s approval of the programme, Pakistan’s 25th since the first such bailout deal was signed in 1958.

The IMF executive board, responsible for ratifying SLAs and releasing funds, is yet to include Pakistan’s case on its agenda. The delay has fuelled speculation about whether the debt-hit country has failed to meet the IMF’s bailout conditions.

Earlier this week, Pakistan’s Deputy Prime Minister Ishaq Dar accused the IMF of “deliberately delaying” the release of funds.

“In the past two and a half years, efforts have been made to sabotage Pakistan’s critical negotiations with the IMF. There was geopolitics at play when Pakistan was close to default,” Dar said while attending an official event in London on September 8.

“Why shouldn’t I raise a finger when our technical review is complete? Why are they wasting our time?” he said.

Pakistan’s economic struggles

Pakistan’s economic meltdown was worsened by political instability – and both tragedies hit the cash-starved nation of 241 million people at almost the same time.

In 2019, the then-Prime Minister Imran Khan secured a three-year IMF programme, but violated its conditions by drastically reducing fuel prices in early 2022, shortly before his government was deposed through a parliamentary vote.

The succeeding coalition government, headed by current Prime Minister Shehbaz Sharif, resumed the programme in August 2022. Dar was appointed the finance minister the next month.

But Sharif’s government failed to secure a remaining tranche of the $6.5bn agreed to under the 2019 loan deal.

Meanwhile, the condition of the economy worsened, pushing Pakistan to the brink of default. Inflation surged to a record 38 percent in May 2023, while foreign reserves dwindled to just more than $3bn.

In the next eight months, numerous meetings were held between the IMF and Pakistani officials – but the final instalment was not released.

Pakistan Prime Minister Shehbaz Sharif meets with the managing director of the International Monetary Fund (IMF), Kristalina Georgieva, in Paris, France, June 22, 2023 [Handout/Press Information Department via Reuters]

Pakistan eventually narrowly avoided default when Shehbaz Sharif, in his first stint as prime minister, managed to secure a new, nine-month long $3bn Stand-by Agreement (SBA) with the IMF in June 2023.

A caretaker government came to power in August 2023, following the completion of the previous parliament’s term of five years.

In its six-month-long tenure until February 2024, the interim government ensured the SBA remained on track to completion, meeting key IMF demands of maintaining “fiscal discipline, structural reforms and a return to market-determined exchange rate”.

Sharif became the prime minister for the second time after the February elections and handpicked Muhammad Aurangzeb, a veteran banker, to be the new finance minister in an effort to bring some stability to the economy.

By August 2024, inflation had dropped to 9.6 percent, the lowest since October 2021, while foreign exchange reserves, bolstered by deposits from China, the UAE, and Saudi Arabia stood at just more than $9bn.

In April, Aurangzeb-led Finance Division managed to complete the SBA, and in subsequent negotiations with the IMF, Pakistan managed to reach an agreement for a new $7bn loan programme in July.

Why has IMF not approved the loan?

While Dar suggests “geopolitical factors” may be responsible for the delay, experts believe Pakistan’s failure to meet two key IMF demands is the root cause: securing the rollover of debt repayments to China, the UAE, and Saudi Arabia, and obtaining an additional $2bn in additional financing.

“Pakistan is struggling to roll over its debt with bilateral lenders and is also facing challenges in securing $2bn in financing,” economist Fahd Ali told Al Jazeera.

Ali said that Pakistan is trying to reach an agreement with commercial banks in the Middle Eastern countries to get the $2bn, “but these efforts have yet to materialise, which is causing the delay with the IMF”.

The uncertainty surrounding the IMF approval has rattled the stock markets, with minor slumps reflecting concerns about the programme’s future.

Economic analyst Shahbaz Rana noted that the instability in Pakistan’s political landscape is affecting the government’s credibility, referring to the continuing tussle between the government and the opposition Pakistan Tehreek-e-Insaaf party (PTI) of Khan, which claims that its mandate was stolen in the February elections.

“They keep saying the IMF programme will be finalised this week or next, but this only adds to the confusion,” Rana said.

Further doubts emerged when Punjab, Pakistan’s largest and most prosperous province, announced a 45-billion-rupee ($161m) electricity subsidy in August.

The Punjab government claimed the subsidy will come from provincial funds without federal assistance, but economist Safiya Aftab believes the IMF is unlikely to approve of any form of energy subsidy.

“The IMF has consistently emphasised the need to reduce and eventually eliminate energy subsidies. I believe the Punjab government will eventually withdraw the subsidy, likely blaming the IMF for the decision,” Aftab told Al Jazeera.

Muhammad Aurangzeb, a veteran banker, took over as Pakistan’s finance minister after February elections [Ken Cedeno/Reuters]

Are geopolitical factors delaying IMF approval?

Pakistan’s external debt stands at more than $130bn, with nearly 30 percent owed to China, its closest ally and a perceived rival to the Western bloc.

Pakistan is also due to repay almost $90bn over the next three years, with the next major payment due by December.

In his London speech, Dar questioned the IMF’s motives, suggesting they were pushing Pakistan towards default.

“We are a nuclear state. Every time we move toward economic success, our legs are pulled. The eight-month delay in funds disbursement is a crime in the economic life of a country,” he said.

However, academic Ali described Dar’s comments as “irresponsible and embarrassing” for a government negotiating with the IMF.

“The IMF wants Pakistan to stick to the agreed-upon plan. Any deviation will raise concerns for the Fund,” Ali said.

The LUMS professor said that the past deals with the IMF took place in a “certain geopolitical context” in which various Pakistani governments enjoyed considerable leeway.

The global lender, which is seen to be dominated by the US, has continued to provide loans to Pakistan since the late 1990s and after the turn of the century, despite it managing to complete only one extended fund facility programme.

The support for Pakistan, a key US ally, was seen as necessary following the US war on Afghanistan, which began after the September 11, 2001 attacks.

But within Pakistan’s political and strategic circles, a perception has taken hold that the IMF has started imposing strict conditions before agreeing to loan programmes ever since Islamabad grew closer to China, now Pakistan’s principal financial and strategic partner.

“That space has disappeared since past few years and the governments ever since have failed to read the signals emanating from the US and the IMF since then,” he adds.

However, Rana, the economic analyst, said that the IMF has been setting fiscal targets for Pakistan that are “unrealistic” and added that Dar’s comments do have certain merits.

While Ali believed failure to secure the IMF deal could be disastrous, Rana argued that Pakistan still has some breathing room.

“Pakistan can manage a further delay in the IMF programme until November,” Rana said. Pakistan’s next major debt repayments are due in November. “However, in the long term, the country will need continued IMF support or consider external debt restructuring to avoid default,” Rana added.