KARACHI: The International Monetary Fund’s final approval to a $6 billion bailout package for Pakistan will unlock an additional $38 billion from the country’s international partners, the multilateral agency has said, but concerns over whether Pakistan will be able to enact strict structural reforms attached to the rescue program loom large. The IMF Executive Board approved a three-year loan package for Pakistan on Wednesday to rein in mounting debts and stave off a looming balance of payments crisis, in exchange for tough austerity measures.“The Fund-supported program is expected to coalesce broader support from multilateral and bilateral creditors in excess of $38 billion, which is crucial for Pakistan to meet its large financing needs in the coming years,” the IMF said in a statement issued on Wednesday.Pakistan’s de facto finance minister Dr Abdul Hafeez Shaikh told reporters on Thursday the first installment of the loan would be received by July 8, 2019, with a mark up of 3 percent.The remaining amount will be dispersed evenly during the program subject to four quarterly and four semi-annual reviews, the IMF statement said. Historically the IMF has followed a quarterly review system.The IMF has provided more than 20 bailout packages to Pakistan since it became a member of the multilateral body in 1950. The country signed its first program on December 08, 1958 for $25 million. Before this year’s deal, the last programme for a $4.3 billion Extended Fund Facility was signed in 2013. Between 1958 and 2013, the IMF has disbursed at least $13.7 billion to Pakistan against agreements for $19.3 billion, according to a research report by Arif Habib Limited, an equity brokerage firm.Since 2000, Pakistan and IMF have signed four loan programs, all of which were prematurely concluded. The last two programs were the largest in the country’s history, $7.2 billion and $4.3 billion, signed in 2008 and 2013 respectively.“We were facing a balance of payments crisis and had to accept stringent conditions of the Fund,” Dr Vaqar Ahmed, Joint Executive Director of the Sustainable Development Policy Institute (SDPI), said, referring to the last two deals. The program signed in 2008 was prematurely ended largely because Pakistan received financial help from friendly countries, he said. “In 2013 we got relief from the [$60 billion] China Pakistan Economic Corridor,” Ahmed said. “We thought the tight conditions of the IMF were difficult to fulfil politically and as money from China was coming in, we opted out of the IMF program earlier.”Pakistan was also unable to minimize its circular debt, or accumulated power sector arrears, or reduce deficits of, and privatize, 119 government owned entities.
“We did not want to layoff people [in state companies], fearing political unpopularity and we did not want to increase the exchange rate,” Ahmed said. This time round, the IMF's terms have called for a "flexible market-determined exchange rate" to help correct an unsustainable current account deficit and make industries more competitive, while trying to expand the tax base in a country where only 1% of the 208 million population file returns.
To meet the conditionalities, the central bank, which controls the currency, has hiked interest rates to 12.25% and slashed the rupee to historic lows against the dollar, but this has piled more pressure on households facing inflation running at almost 9%, a five-year high.
In addition, in a bid to cut public debt, the government has set ambitious tax and revenue plans, despite failing to meet the previous year's targets and hiked prices in the creaking energy sector, where mounting debt backlogs have acted as a growing drain on government resources. The programme also calls for expanded social spending to protect the most vulnerable.
Senior economist Dr Mushtaq Khan said he doubted Pakistan would follow the Fund’s reforms programme, as the country only cared about reforms during “an acute balance of payments problem, and [when] we need an IMF bailout. Once the BoP problem has been overcome, our policymakers and bureaucrats become complacent and self-serving,” he said.
But Pakistan’s finance tzar said Pakistan was ready to “take difficult decisions.”
“Pakistan, by entering into an agreement IMF is sending a message to the world that its government will show responsibility in controlling its expenditures and will mobilize taxes from its wealthy classes,” Shaikh said.
