Can Pakistan Leverage US Ties for IMF Relief?

A recent Financial Times report claimed that Pakistan is leveraging its relationship with the United States military to win concessions at the International Monetary Fund (IMF).

The report says that Pakistan’s newly-appointed finance minister, Shaukat Tarin, told the Financial Times in a recent interview that the ongoing withdrawal of U.S. troops from Afghanistan had given Pakistan some space to delay the IMF’s requested tough reforms.

“What we do not need is more burden on our poor people and we have been talking to the American officials and they’re willing to help,” Tarin was quoted as saying by the Financial Times.

Tarin, however, denied the report, saying that the U.S. was mentioned just once during the interview when the interviewer asked him about Islamabad’s relations with Washington. He said he responded to this question by saying that “the U.S. has earmarked some amount” for Pakistan’s military training, adding that neither had the U.S. “reserved any other allocation” nor did Pakistan “want it.”

However, in his rebuttal of the Financial Times story, Tarin admitted that the interviewer did ask him about the progress Pakistan had made in its negotiations with the IMF. Tarin claimed that even in his response to that question he “didn’t make any mention of the U.S.”

While Tarin says that his ministry will issue a formal rebuttal of the Financial Times story, it’s possible that the report’s claims are true for two important reasons.

Pakistan’s budget for fiscal year 2021-22 has increased development spending by more than 40 percent when compared to last year. Every category of business, especially industrial and financial services, has received major tax cuts. However, these tax cuts are not going to make the IMF happy, particularly when the tax revenue target for the next year has been set at 5,829 billion Pakistani rupees ($37.4 million), which is 134 billion rupees less than what the government committed to the IMF.

Moreover, Pakistan has set its growth target at 4.8 percent of gross domestic product (GDP) for the 2021-22 financial year and a fiscal deficit target of 6.3 percent. In the 2020-21 financial year, with GDP growth of 3.96 percent, Pakistan surpassed its growth projections against a target of 2.1 percent despite a deadly third wave of COVID-19.

A part of this became possible because Pakistan refused to accept the IMF-proposed reforms at the peak of the coronavirus pandemic in 2020. In 2019, Pakistan signed a $6 billion loan agreement with the IMF, but the government in Pakistan has maintained that the targets attached to the deal, particularly stimulations related to raising taxes and reining in government spending, are tough to implement.

A senior government official, who spoke with The Diplomat on condition of anonymity, said that Islamabad wants the IMF to ease “tax hike restrictions.”

In this context, it is possible that Pakistan’s military leadership reached out to its U.S. counterparts to seek help for making its case at the IMF. Military-to-military ties between Pakistan and the United States have remained strong, and have mostly survived trouble in the political domain.

Over the last few months, several senior U.S. military officials have either spoken to or held direct meetings with the Pakistani military leadership. According to a recent New York Times report, William J. Burns, the Central Intelligence Agency (CIA) director, made an unannounced visit to Pakistan recently to meet with Pakistan’s Army chief and the head of the directorate of Inter-Services Intelligence, the country’s intelligence agency. Apparently, the visit was meant to explore the possibility of Pakistan offering bases to the U.S. amid the latter’s withdrawal from Afghanistan. U.S. Secretary of Defense Lloyd J. Austin has called the Pakistani military chief frequently in recent months.

On the other hand, Prime Minister Imran Khan is yet to speak with U.S. President Joe Biden directly, indicating that democratically elected governments in Pakistan do not mean much, so long as Washington’s security needs find ears in Islamabad’s security circles.

Pakistan’s military does seem to have leverage at the moment as the U.S. is looking to secure the presence of its counterterrorism missions in the region in order to be able to keep an eye on developments in Afghanistan from the sidelines. So far, Pakistan’s messaging in this regard has not been clear, as the country looks to cut a workable deal with the United States.

If Pakistan agrees to a deal, allowing the presence of U.S. counterterrorism troops on its soil, the country’s case at the IMF could very well be a part of the arrangement. Americans are likely to consider such a proposal as a necessary cost. Not having a U.S. presence in Afghanistan’s neighborhood could cost Washington dearly. It could result in a resurgence of militant groups in the region and weaken American capacity to keep tabs on countries like China and Iran.

The IMF is ready to start another round of negotiations with Pakistan, which would mostly comprise asking the latter tough questions on the recently passed budget. Pakistan may very well play the Afghanistan card to muffle such questions one more time.