- Tightening the belt is the first step
A portion of the funds required by Finance Minister Asad Umar to plug the country’ finances has now been procured. This however is only sufficient to alleviate part of the pressure on the balance of payments. The recourse to the IMF dreaded by the government still remains unavoidable. The Saudi aid package has however had a positive impact on market confidence with key stock index jumping 2.7 percent on Wednesday.
Saudi Arabia will place a deposit of $3 billion for a period of one year as balance of payment support. The facility of oil on deferred payment up to $3 billion for three years, reviewable afterwards, will partially cover expenditure on petroleum products and crude oil. The Saudi loan will be roughly equivalent to one-third of Pakistan’s current account deficit of $18bn during the last financial year. The deficit for the present financial year is likely to swell to $25b or more. With the size of the desired bailout package getting reduced after the Saudi assistance, this should help Pakistan to negotiate a facility from the IMF with less stringent conditions.
The need for an IMF bailout persists. The package of reforms negotiated with the Fund would cause a sharp rise in gas and electricity prices, thus adding to the common man’s economic woes manifold. The reforms would however force the PTI government to undertake measures that the governments otherwise seek to avoid which would put the country on a more solid financial footing and strengthen its position while seeking funding from international financial institutions and markets.
The immediate economic impact of the IMF package would cause large scale public resentment. By continuing to follow the unwise policy of pushing the opposition to the wall, the government is driving it to go for a no-holds-barred confrontation. Whatever the nature of the cases against the opposition leaders, they continue to have a following in the country. What is needed is a policy of tolerance on the part of the government. A short-sighted administration usually brings forth an equally short-sighted opposition.
