Pakistan moves toward deal-or-default endgame

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Pakistan is facing a potential default due to its current economic turmoil, including the largest-ever currency devaluation and emergency spending cuts. The country’s foreign reserves are depleting, with only $3.7 billion remaining, which is barely enough for three weeks of essential imports. The International Monetary Fund is overdue in releasing the next tranche of $1.1 billion in a bailout program that is set to end in June. The situation is complicated by the upcoming elections and the suspension of disbursements from the current IMF package. If the IMF does not provide funds, default risk increases, and Pakistan may face its first international default since 1999. The government is hopeful that the IMF will resume disbursements, but the IMF’s support may depend on significant belt-tightening measures that may be unpopular with voters. The political timing is also critical, as the caretaker government in charge after the current government’s tenure ends in August is not empowered to sign an IMF agreement.

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