Even before going to the International Monetary Fund, the country has begun paying the cost of doing so, as the recent budget not only added to already backbreaking inflation, and the government scrambled to put into effect that one-percent increase in the General Sales Tax. At his post-budget press conference on Thursday, federal Finance Minister Ishaq Dar said that Pakistan will negotiate on its own terms for a fresh loan package to repay the previous one, which was a confirmation of what was widely speculated, but about which it was said that an official decision had yet to be taken: going back to the IMF for a fresh loan. It is true that the biggest pressure on the balance of payments is presently the repayments to the IMF. What Senator Dar is apparently seeking is a breathing space, for the package would not be used for development, but to repay loans. While Pakistan would avoid paying back the loans, the IMF would also avoid a default appearing on its books. However, the IMF is wary of Pakistan, because it has not fulfilled the conditionalities it had been setting for its loans. Therefore it wants what it calls ‘frontloading’, for the conditionalities to be implemented first, and then for the loan to be given.
One manifestation has been the case, that in the recent Budget, which has not provided any relief to the masses. Coming up is an increase in the electricity tariff. This has been followed by a burst of immediate inflation, and the increase in POL is particularly dire, as it will cause inflation in all goods.
Senator Dar insists that an IMF payment on Pakistan's own terms, will be necessary to stabilise Pakistan’s economy. He has the confidence even though Pakistan’s past experience with IMF programmes has been unfortunate, especially because of the lack of necessary reforms, which whether the IMF pushes for them or not, are necessary to ensure the upward trajectory of Pakistan's economic health. The IMF package on its own will not succeed. The stringent conditions in the new budget are indications of the tough recovery initiatives that must be taken to ensure stability in the long run. It is almost a credit to the government that it has had the nerve to serve its constituents such a cutting budget. If only it had replaced the GST with a VAT, another necessary step would have been taken. Unfortunately the regressive GST has been increased another 1percent, with the greater burden on the average consumer, already striving to make bare essential ends meet. The new IMF package will only hobble the government, if Mr Dar cannot use the temporary respite it will provide, to implement a more permanent solution for Pakistan's woes.