Pakistan has finally gone back, cap in hand, to the IMF, to ask for a fresh package, because it can’t make the payments on the loans it has already taken. The last IMF programme ended without Pakistan taking up the last tranche, but with the IMF continuing to exert policy pressures on Pakistan, probably because government policymakers realized that Pakistan would need a fresh loan to avoid default. This year, the IMF is to get $1.3 billion by the end of the fiscal year, and $4.3 billion the next fiscal, if Pakistan wishes to keep up on payments to it. Pakistan will not see a cent of any money the IMF might lend, because it will be taken back when repayments are due. It needs this rollover because of the $7.6 billion it borrowed from the IMF in 2008 as a standby. The money was supposed to help it shore up its foreign exchange reserves. The standby arrangement came with stringent conditions, focusing on the power sector, and the conditions continued after the loan stopped, forcing the government to raise fuel prices as well as impose harsh taxes. Finance Minister Hafeez Sheikh intends to argue that the international financial institutions have confidence in Pakistan, something reflected in the World Bank approving an unprecedented $1.8 billion for development projects for the current year. That the projects include the Dasu Dam, expected to generate 1500MW of hydel, is welcome, but if it is meant to shove the Kalabagh Dam, despite its excellent feasibility, back, it will not still the popular demand.

That both the IMF and the World Bank are Bretton Woods institutions meant to ensure that the USA’s political will is done, can be seen from its failure to support a project ready to go, but held back by a combination of pusillanimity and suborning by a jealous neighbour, but also by their failure to demand an end to government extravagance, particularly the lavish lifestyles engaged in by the army of ministers that has been inducted. With the USA approaching the endgame in Afghanistan, Pakistan should prepare itself for more pressure from both these institutions.

While the government made the initial mistake of obtaining the loan, it must not compound the error by taking a fresh loan, accepting presumably more horrendous conditions, particularly not in an election year, as this will be. They must make sure of a balanced budget, by admitting that enlarging the cabinet was a bad idea, shrinking it, and cutting on government spending. A balanced budget will be better news for the nation than any loan brought in, especially from the IMF.