Bail Out For Pakistan By IMF — India Must Warn IMF To Seek Anti Terror Actions First
“Pakistan is facing significant economic challenges on the back of large fiscal and financial needs and weak and unbalanced growth,” said IMF First Deputy Managing Director David Lipton.
So it seems that out of pity the International Monetary Fund Executive board has approved a three-year, $6 billion loan package for Pakistan to rein in mounting debts and stave off a looming balance of payments crisis, in exchange for tough austerity measures.
Tge Board approval will now permit immediate disbursement of around $1 billion, with the remainder to be phased in over the period of the programme, subject to quarterly reviews.
The programme will require “decisive fiscal consolidation” and a multi-year plan to strengthen Pakistan’s notoriously weak tax system as well as large scale reforms that are likely to pile pressure on Prime Minister Imran Khan’s government.
The IMF has provided more than 20 bailout packages to Pakistan over the decades. However, despite securing billions of dollars in loans from friendly countries including China, Saudi Arabia and the United Arab Emirates, mounting economic headwinds forced his government to turn to the fund.
With foreign exchange reserves shrinking to only $7.3 billion, less than the equivalent of two months’ worth of imports, and the budget deficit set to top 7 per cent of the gross domestic product this year, Pakistan faces tough economic medicine to tackle problems that have been years in the making.
Dominated by agriculture and textiles and with a large informal sector that pays no tax, the economy has struggled to develop export industries and successive governments have spent heavily to defend an overvalued exchange rate.
The $60 billion China Pakistan Economic Corridor (CPEC), launched in 2015, had promised a new beginning. Its infrastructure projects were intended to become a new foundation for growth, but they also required heavy imports of capital equipment, widening the trade deficit. The interest terms are so skewed that it is only now many Pakistanis are realizing the trap their country has fallen into. In the foreseeable future people of Pakistan will vome to know about the phrase “ Economic Slavery “.
As per According IMF forecasts, real GDP growth is expected to slow to 2.4 per cent in the current fiscal year to June 2020, down from 3.3 per cent in the year just ended.
The IMF’s has set some hard terms for the bail out. It calls for a “flexible market-determined exchange rate” to help correct an unsustainable current account deficit and make industries more competitive, while trying to expand the tax base in a country where only 1 per cent of the 208 million population file returns.
However this is not enough. What India should tell the IMF is that, they must seek concrete action on anti terror actions. Funds should be released only then. Appropriate action must be initiated by India with various world bodies in this regard to force IMF into action.
In a bid to cut public debt, the Pakistan government has itself set ambitious tax and revenue plans, despite failing to meet the previous year’s targets and hiked prices in the creaking energy sector, where mounting debt backlogs have acted as a growing drain on government resources. The programme also calls for expanded social spending to protect the most vulnerable.
However, the combined package of belt-tightening measures has prompted anger from opposition parties, which say the government hesitated too long before turning to the fund. They have pledged a campaign of protests this month.