New govt’s first challenge: IMF bailout

Foreign aid is a vicious circle, and Pakistan is wallowing in the midst of it. The biggest challenge for the newly elected government shall not be the militants hiding in its territory but potential bankruptcy and the consequences attached with trying to avoid it.

Lingering on the brink of the next big economic crisis, Pakistan needs a new strategy to rescue it from being perpetually dependant on foreign agencies. Such strategies are hard to come by, and there is little doubt that whichever party makes the government will agree to a multi-billion-dollar bailout from IMF as the easy way out.

Yet this easy path will have severe repercussions of its own. Although talks have already begun for the provision of another transfusion to keep Pakistan’s finances from drying up in the next six months, IMF’s conditions for any deal will make the country sweat.

The IMF may stump up around $5 billion, Pakistani officials say, just enough to repay the outstanding debt on an earlier $11 billion package that was suspended in 2011 after economic and reform targets were missed. The new IMF loan would likely spread repayments over five to 10 years, said Shahid Amjad Chaudhry, financial adviser to the pre-election interim government.

Pakistan requires between $6-$9 billion to avoid a balance of payments crisis, the Asian Development Bank said.

For the extra money, Islamabad looks set to turn to the ADB, World Bank and other multilateral lenders, along with countries with whom it has compelling foreign policy ties like the United States, China and Saudi Arabia.