Adnan Naeem

Pakistan and the International Monetary Fund agreed to a long-term bailout loan of at least $5.3 billion that would give breathing room to the country’s struggling economy. The country had long been discussing a fresh bailout package from the IMF after abandoning $11.3 billion loan programme in 2011 after the PPP led government refused to carry out strict financial reforms. This loan is intended to use for rebuilding foreign exchange reserves, pull the plug on energy crisis and a sliding currency in Pakistan. Though, it was a contradiction of PML (N)’s election manifesto, but the government’s finance minister says there was no way out to retire from past liabilities.

This loan from IMF will carry a floating interest rate of 3pc and would be payable over a longer period than conventional arrangements to facilitate Pakistan in repaying the loan, IMF’s Pakistan Mission Chief, Jeffrey Franks told the journalists.

“The government has developed plans to improve tax collections through improved administration and through a mechanism to eliminate loopholes in the coming years,”

Though, unanimously agreed that acquiring bailout package was badly needed, economists differ on impact of IMF’s loan on inflation, money supply and economic growth. The .critics argued that the government must rely on country’s own resources as the new loan is a continuation of pushing the economy into an unending debt trap. They argued that since Pakistan joined the IMF in 1988, the country has availed 11 loan programmes. However, all standby arrangements, except for one, did not reach the conclusion because of lack of implementation of tough conditions.

The economists suggest local options to raise revenues, e.g. seeking help through the forum of “Friends of Democratic Pakistan”, obtaining oil facility from Saudi Arabia on deferred payments, recovering $800 million pending amount of PTCL’s 26pc shares that was sold to Etisalat, and increasing tax revenues by capturing tax evaders and via expanding the tax net.

It is also suggested that alike India, Pakistan’s government can borrow from overseas Pakistanis by issuing securities like bonds. By these entire means, the government could raise $3-5 billion collectively. They also raise a concern that the supply of dollars from the JMF will result in devaluation of rupee up to Rs 105 against a dollar.

Long lists of recommendations are there but no one tells how to fasten the bell in cat’s neck. The existing reserves with the State Bank of Pakistan (SBP) are hardly $4 to 5 billion (excluding commercial bank liabilities), which are barely enough to foot the import bill of one month against the standard benchmark of having enough reserves to foot the import bill of next six months. Under the above circumstances, “borrowing” from IMF is the most logical choice to repay foreign obligations, boost foreign reserves and restore investors’ confidence. The government in power has already shown its mood to implement tough decision like up to Rs 3/unit increase in power tariff, broadening of tax net and printing of additional Rs500 billion to pay off circular debt will ultimately have an impact on inflation. The SBP’s tight monetary policy to control inflation will limit the availability of credit to businesses and will slow down business activity. Thus, there would be an increase in prices in coming months and the GDP growth will be lower than expectations which may damage the popularity of incumbent government. However, the newly installed government would boost its public support if it successfully revamps the loss making public sector enterprises e.g. Railways, PIA, Steel Mills, Pepco and turns them into profitable concerns and saves up to annual loss of Rs 300 billion to national exchequer because of these white elephants. (The writer is a student of Lancaster University)