Pakistan leverages US military co-operation to win IMF concessions

Pakistan’s finance minister said military co-operation with the US over America’s withdrawal from Afghanistan had given Imran Khan’s government “some space” to delay unpopular IMF reforms.

Islamabad is in talks with the IMF to release the next tranche of funding as part of a $6bn loan programme as Pakistan struggles to tame inflation and recover from the shock of the pandemic.

Officials are seeking US support in the form of financial backing from the Washington-based international financial institution in exchange for helping President Joe Biden withdraw all US troops by September 11 and bringing the Taliban to the negotiating table. 

Shaukat Tarin, Khan’s fourth finance minister in three years, said the IMF had been receptive to Islamabad’s request to hold off raising power tariffs and sales taxes that have hit Pakistan’s poor hard.

“What we do not need is more burden on our poor people,” said Tarin. “We have been talking to the American officials and they’re willing to help.”

Tarin, who took office in April, has returned to the post after negotiating an IMF bailout in 2008 when Pakistan-US co-operation was at its height.

“In 2008, we obviously had the US and everybody else on my right side because of the war on terror . . . Today things are different,” said Tarin.

Pakistan’s relationship with the US deteriorated after the Trump administration cut $2bn in security aid in 2018, citing its continued support of the Taliban. Trump tweeted that Pakistan had “given us nothing but lies and deceit”.

Since then, however, Pakistan has played an important role in helping the US end its war in Afghanistan.

Jake Sullivan, the White House national security adviser, said this week that the US and Pakistan have had “constructive discussions” about “the future of America’s capabilities”. 

These include a base in Pakistan that Washington has asked Islamabad to use to launch counter-terrorism operations in Afghanistan. 

Khurram Husain, a business columnist in Pakistan, said: “Pakistan will have to leverage some kind of geopolitical muscle to get the IMF to back down. They’ve done it before.” 

Tarin said the resumption of a US military training programme with Pakistan indicated that the relationship was warming. He also said the World Bank was expected to approve at least $800m of new loans by the end of the month.

Pakistan’s poor have been hammered by double-digit inflation, and their discontent with the economy is a political liability for Khan’s government.

“The [economic] growth this year will probably be 4 per cent, but we need more,” said Tarin. 

Pakistan had made progress in addressing its financial challenges but the fallout from the pandemic and political turmoil risks derailing the reform agenda, said rating agency Fitch last month, holding its outlook on Pakistan stable at B-.

Islamabad has been able to access external funding in part because of its compliance with the IMF programme and its progress in addressing terrorist financing.

Pakistan is on the grey list of the Financial Action Task Force, the world’s top anti-terrorism monitoring group. Islamabad was “near to completion” on meeting FATF requirements, said people with knowledge of the talks.

“As President Biden is withdrawing troops, Pakistan’s leverage on the US has improved,” said Asfandyar Mir, a South Asia analyst at Stanford University.

“The US is desperate for help with both the Afghan peace process and counterterrorism. It is left with no option but Pakistan.”

Additional reporting by Farhan Bokhari in Islamabad