The dream of Pakistan’s youth that was once to see Imran Khan as the Prime Minister is now an eight-month-old reality. It is more of an economic disaster if you ask a rational Pakistani. The recent hike in prices has added burden over the lower and middle-income strata of the population while Pakistan’s decision to take a loan from the International Monetary Fund (IMF) will only add trouble to Pakistan’s crisis inflicted economy. However, if Prime Minister Imran Khan, who once vowed never to take loans from IMF, eventually, takes a loan, it will have broader repercussions on Pakistan. The IMF, as seen previously, is expected to sign contracts revolving around the country’s macroeconomic policies. Moreover, inflation will rise and has already reached a five-year high.
It is expected that Pakistan’s government will take a $6 billion loan from the IMF during the coming fiscal year. With the Pakistani Rupee devaluing at a constant rate, the economic conditions look uncertain and economic growth is, for the time being, a distant dream. While the IMF loan is expected to alleviate foreign exchange reserves, international import bills will also be taken care of. The government will implement a new tax regime to generate revenue and, if the government thinks rationally, it will reduce needless expenditure. The loan from the IMF will also diminish Pakistan’s risk to be a defaulter, relatively recover its credit rating and augment foreign exchange reserves. On the other hand, the negative impact of taking a loan from the IMF will include a rise in central excise duty on agriculture and especially on the service sector, a drop in expenses on development programs related to the public sector, Rupee devaluation, mark-up rate increase of banks and a reduction in the GDP growth rate.
Pakistan opting to take a loan from the IMF to resolve its economic crisis is akin to the human body taking an antibiotic when feeling ill. The antibiotics will ease the body for a temporary time period, just as how an IMF loan gives some respite to the economic crisis, but it is not the solution to the crisis
Pakistan’s history with the IMF dates back to 1958 when, just after eleven years of its independence, Pakistan took the first IMF loan of $0.03 billion. Unfortunately, the seven loans Pakistan took from 1958 to 1977 were all bailout packages, which means the country’s economy was in doldrums since independence. In 1965 Pakistan took a loan from the IMF of $0.04 billion, $0.1 billion in 1968, $0.1 billion in 1972, $0.1 billion in 1973, $0.1 billion in 1974 and $0.1 billion in 1977. In 1980, Pakistan took the first loan, not for bailout purpose, worth $1.3 billion. From 1958 to 2001, Pakistan took 16 loans from the IMF, which all were not more than $1 billion. The biggest loan was taken in 2008 for $7.2 billion, which was a bailout package, followed by a $4.4 billion loan in 2013.
Pakistan opting to take a loan from the IMF to resolve its economic crisis is akin to the human body taking an antibiotic when feeling ill.
The antibiotics will ease the body for a temporary time period, just as how an IMF loan gives some respite to the economic crisis, but it is not the solution to the crisis. The government must rationally and logically, with determination and for the sake of Pakistan’s long-term financial and economic well-being, must come up with solutions to add value to its economy. Perhaps the vision of Pakistan Tehreek-i-Insaf (PTI) and the cabinet ministers never serving in the government may have given them a sense of fake self-confidence. This lack of exposure, however, led to PTI’s downward spiral despite being elected with a majority.
Reports claim that the IMF is asking Pakistan in the coming fiscal year to augment its reserve assets by nearly 50% while the FBR tax collection is expected to be between Rs. 1.1 trillion to Rs. 1.4 trillion. Furthermore, the IMF is eyeing the Pakistani government to increase tax revenue by Rs. 657 billion during the next year. This is an impossibility keeping in mind the economic growth has not grown in exponential terms and the tax base has not been expanded. The government will, directly or indirectly, blame the previous governments for the economic crisis looming over Pakistan today. Even if this were true, which partially or maybe completely as some opine will be true, the government must have chosen such plans to keep these crises under control and not let them blow out of proportion.
The writer is an independent researcher, author and columnist