Pakistan’s IMF Bailout

The 12th financial bailout secured by Pakistan from IMF after months of negotiations shows the lackluster state of both the country’s economic and political scenario. This is further confirmed by Ernesto Ramirez Rigo, the head of IMF’s mission to Pakistan who commented on “Pakistan’s challenging economic environment”. With a sum of $6 billion over a period of three years, the bailout is expected to revive some parts of the country’s emaciated debt-ridden economy.
 
But the bailout comes with a series of stringent conditions, which are aimed at disciplining Pakistan fiscally that will necessitate the country to undergo a series of reforms, from an economic overhaul that would involve slashing subsidies, expanding the tax base and raising electricity prices, to a political fix-it plan that would require it to strengthen institutions and combat money laundering and choke terror financing.
 
Imran Khan, who assumed office in August 2018 with the promise of “Naya Pakistan,” was a vociferous critic of the IMF as an opposition party that made him look towards obtaining temporary relief from countries such as Saudi Arabia and China. But, given the ballooning economic crisis, he has been forced to break his pledge and jeopardize his grand promises on high-expense welfare schemes.
 
The current IMF bailout will lead to a quicker-market based financing along with a lower financing of costs that would ensure fiscal prudence. Given that Pakistan has a patchy record in the past, such condition will augur well with the economy. This would entail offering opportunities for foreign investors who would view Pakistan as a more disciplined actor in the world market.
 
Moreover, the required subsidy cuts and reform of age-long institutions will be unpopular and alongside exchange rate liberalization will result in higher inflation that will affect consumer spending. But if the given target ( 0.6 % of GDP in the 2019-20 budget) is adhered to, Pakistan will have an opportunity to revive the economy by curtailing the deficit.
 
However, the idea of providing a bailout package is not without its shares of complications. For instance, the US has expressed skepticism as they fear that the aid money will end up filling China’s coffers. Analysts have further expressed concerns over Beijing trying to take over infrastructure assets in lieu of debt repayments, a trend indicated in the past with countries such as Sri Lanka.
 
But, the opportunity now lies with Pakistan, in a scenario where it is currently undergoing “stagflation” i.e. a combination of high inflation and weak economic growth. Khan now needs to put aside populist compulsions and work towards bettering the country’s economy.
 
It is a widely known fact that a country that has a higher standard of living for its people will also be less susceptible to social strife. Thus, for the sake of both the country’s own security and for the neighbourhood at large, a gradually prosperous Pakistan with a heavy weight nuclear arsenal will pose a lesser risk than a country that is battered with crisis. And to this end, an economic revival is certainly a necessary condition.
 
India Outbound
May 15, 2019
 
 

source https://indiaoutbound.org/pakistans-imf-bailout/