The IMF loan package

Comes with conditions, as usual

Desperate times call for desperate measures but that is the only way forward. As has been known widely, IMF loan programmes aren’t an easy pill to swallow but our economic situation does not allow us to be a bit, let’s just say, demanding. With barely enough foreign exchange reserves to support imports for less than two months, Pakistan would certainly welcome any bailout package it can get, as many restriction laden as it may be. The basic question as to why the country’s economy is in doldrums should be dealt on its own; however, what is interesting is to see how the newly-installed PML-N government will tackle the issue.

Finance Minister Ishaq Dar and IMF’s Regional Adviser on Pakistan Jeffery Franks agreed on a new loan programme of $5.3bn the other day. Though the deal has yet to make it through the Fund’s Washington office and its board of directors, officials consider that it won’t be a problem. This new loan deal will provide Pakistan with enough impetus to service its external debts and stabilise its dwindling economy but as no IMF loan comes without conditions, this one has some too despite Mr Dar projecting, and Mr Franks accepting, it to be a ‘home-grown’ solution. Spanning over a period of 10 years, with a grace period of four years, the loan will have to be repaid at a roughly three percent interest rate. The Fund has agreed to the loan only after the Nawaz government agreed to overhaul its financial and fiscal policies, particularly the ones related to fiscal deficit, low tax-to-GDP ratio, subsidies and inflation rate. In case Islamabad doesn’t make these changes, it won’t just risk losing this loan but also risk committing default on its already underway foreign loans. Pakistan has to avoid this dire situation and Mr Dar’s statement that “that’s the only reason we are going to IMF with a home-grown reform programme” gives one hope that this government is serious in bringing changes to the policies that haven’t worked so far.

Pakistan cannot take any more risks with its economy. War on terror on and beyond its western borders and incidents of sectarian terrorism inside the country, along with power shortages, have already brought economic and financial activities to an almost standstill. Restructuring the whole financial and economic system will certainly present its share of problems, for it is going to be an uphill task, yet this one step might save Pakistan from a financial collapse. Now that the IMF has agreed to furnish this loan, Finance Minister Ishaq Dar has to prove his skills on implementing the pre-requisites and conditions that come attached with the deal. Whether he succeeds or not remains yet to be seen though it would be better for the country if those changes are implemented.