IMF Bailout Package for Pakistan/Essay on Pakistan Economy / CSS 2023 Essay and Current Affairs

IMF Bailout Package for Pakistan/Essay on pakistan economy

The IMF deal is done after months of complex negotiations. It is a significant relief to a teetering economy. However, while the release of the much-awaited $1.17 billion may help the country escape the immediate threat of default, the crisis is far from over. The revival of the stalled IMF loan program was critical for a shaky government.

However, like many developing nations, Pakistan is confronted with the specter of an economic collapse and is declared one of the most vulnerable states in this respect. The IMF deal was crucial to stabilizing the financial situation. The latest tranche is part of a $6bn loan facility.

Pakistan entered the IMF program in 2019, but only half of the funds were disbursed as the previous government did not find it easy to keep the targets on track. A little before its ouster, the Imran Khan government announced a vast subsidy plan derailing the entire stabilization effort. It was driven by political expediency as the former prime minister faced a no-confidence motion and political uncertainty disturbed everything, including the economy. 

The reckless populist actions plunged the country deeper into the financial crisis. It left the new administration negotiating the revival of the Fund program on much harder terms. It required taking necessarily harsh economic measures before the IMF's approval. It was perhaps the toughest conditional in the country. Not only were the prices of petroleum products increased, other subsidies, too, were withdrawn.

The government generated an additional Rs436bn in taxes. Those actions meant a substantial political cost. At the same time, Pakistani authorities and the IMF staff mission reached an understanding to revive the stalled loan program in June. Signs of hope were also observed as the IMF consented to consider an extension of the loan facility and increase it by $720 million to expand its size to $7bn. With the IMF's formal approval. Pakistan will likely get financial aid from multilateral agencies such as the World Bank and some friendly countries.

IMF Bailout Package for Pakistan/Essay on pakistan economy / CSS 2023 Essay and Current Affairs  

That is good news for the government, but more challenging times are in store with the economy still in dire straits. It will be a significant challenge to ensure that economic stabilization goals are on track in the face of the latest catastrophe caused by the floods and torrential rains that have affected an estimated 33m people. That is 15 percent of the entire population. The magnitude of the devastation is far greater than seen in recent history.

Millions have been displaced across the country.

People have lost their livelihoods, with hundreds of thousands of acres of crops destroyed and livestock perishing in the floodwaters. Roads and dams have been destroyed, causing massive damage to the infrastructure. With the forecast of more floods, the situation remains dire.

It is too early to calculate the economic cost of the devastation, but according to the government's estimation, the country would need more than $10bn to rebuild. A weak economy cannot bear such colossal losses. With millions of acres of crops lost, the country may also face acute food shortages in the coming months, worsening our predicament.

It will make it extremely difficult for the government to contain the spiraling inflation, which is already over 40pc.

In this situation, it would be a monumental challenge for the government to keep IMF conditionalities on track. There will be growing political pressure on the government, both from the opposition and within the ruling coalition itself, to restore some of the subsidies, particularly on petroleum products and power tariffs that constitute a significant part of the Fund's stabilization program.

Given the existing political polarisation with the opposition PTI ruling Punjab and KP, the federal government's capacity to effectively implement harsh economic measures has weakened. The PTI, through its provincial governments, even tried to sabotage the IMF deal at the last moment. The leaked telephonic conversation between former federal finance minister Shaukat Tarin and the finance ministers of Punjab and KP reinforces allegations that the PTI is trying to undermine the IMF deal.

While the PTI may not have succeeded in stopping the disbursement, it can still create problems for the federal government. PTI leaders are already campaigning against the deal, even though the latest agreement is the continuation of the 2019 IMF program started under the Imran Khan government. The former government's decision to deviate from the course destabilized the economy.

It was one of the reasons why the IMF hardened its conditionalities. With the economy on the brink, the government had no option but to swallow the bitter pill. Surely the increase in oil prices and the removal of subsidies have severely hit the people, but they saved us from complete economic collapse.

It was certainly not easy for the fledgling government to take politically unpopular measures in the face of strong opposition. Intriguingly, Finance Minister Miftah Ismail faced the most scathing criticism from some senior party members. It manifested the power struggle between the PML-N and the Sharif family. One must give him credit for standing firm and successfully concluding the deal. However, it is not the end of the saga.

IMF Bailout Package for Pakistan/Essay on pakistan economy / CSS 2023 Essay and Current Affairs