The road to IMF for Pakistan has been tough, stringent and full of barbed wires. The relationship between the two dates back to December 1958 when $25,000 were paid for the research carried out by Jang Group. These loans were not aimed at bringing economic stabilization until 1988 when a structural adjustment facility program was brought in. It was a soft loan as interest rate was low but with harsh adjustments attached. This put a new debate in the country about how efficient the program would be. This program failed to achieve its concerned target and another loan was prepared at the start of the 90’s. The SAF program of 1991 was pretty much same as that of the former one which included bringing down the public expenditure, reducing the budget deficit, increasing the foreign reserves and devaluation of currency. Yet another program was implemented in 1994 with more harsh conditions being implemented with trade reforms, elimination of different exchange rates and generally talked about the extension of sales tax and imposing excise on utilities. In short, nine programs were brought between 1988 and 2000 which were not fully implemented. Moreover, the amount was also not paid in full. Since, then Pakistan has gone to IMF for 21 times in the past 60 years. This is none the less but a debt trap for the country. Pakistan external debt and liabilities rose to $99.1bn by the end of 2018. Whereas these foreign debts and liabilities are forecasted to cross the mark of $105bn by the end of this year.
Imran Khan before becoming the Prime Minister had been rebuking and was against getting loans from IMF. He used to say that he would rather die than begging for loan from IMF. After coming into the power he inherited many economic issues of mountain like external debt and balance of payments. He resisted going to the IMF instead secured $9.2bn loan from China, Saudi Arabia and United Arab Emirates. Imran Khan had to swallow his pride in order to materialize the deal due to rising inflation in the country with foreign reserves shrinking. The economic growth of Pakistan has also slowed down to 3.4pc from 5.8pc in 2018. The China Pakistan Economic Corridor helped to raise Pakistan’s Growth but due to the rising macroeconomic exposure and domestic policies have weakened the growth. Economic analyst call it as one the toughest bailout in the history of Pakistan. With the country struggling to gather taxes in the past. The new government in parliament is grappling with an old problem of collecting taxes. Collection of these taxes is one of those agenda IMF has been emphasizing upon with every deal made in the past. Earlier this month, Imran Khan has replaced Tax head for Federal Board of Revenue who is a reputable tax consultant. His decision of replacing Shabbar Zaidi as head of FBR is being lauded by many groups. The target of tax collection is also being increased as per the conditions set by fund. There has also been a condition put to abolish tax exemptions of over PKR 700bn in two years’ time. This shows that the distribution of equal and transparent tax burden among people should be one of the first priorities of present government.
With Pakistan all set to bail out for the 13THtime by IMF since 1980’s. The latest program aims to bring $6bn dollars within 3 years of time. The deal drafted on weekend has already impacted Pakistan’s Stock Market which started to show a downward trend as they opened up on the next working day. Moreover, the Pakistani rupee has also started to devalue against the dollar. In just two days the currency devalued by PKR 7 against the dollar by reaching all time high that is PKR 148.25 in the interbank. For almost two years, the State bank used to intervene in the FX market by buying and selling the foreign currency. The sudden surge in the past months was because the currency was artificially inflated at a time when all currencies paired against dollar were depreciating. It is expected that there might still be an increase of rupee against major currencies when the IMF plan is implemented. The present Extended Fund Agreement for $6bn aims to support the government for stronger growth of reducing domestic and external imbalances. It also intends to improve businesses environment, strengthening institutions, increasing transparency and protecting the poor. The stressed economy had an impeding impact of the rising oil prices in 2017 which drove up the imports. At present the oil prices in Pakistan have hiked above the level of PKR 100 per liter. The rise in oil prices is also due to the ongoing seasonal demand moreover, President Trump tightening up the exemptions given to all Iranian oil buyers. The consumers will also be hit with rise in electricity and gas prices as the National Electric Power Regulatory Authority and the Oil and Gas Regulatory Authority will be made autonomous in setting up the prices. They would be paying around PKR 340bn in three years’ time for the mentioned utilities. The present economic situation of Pakistan seems to be in a disastrous position. It was accepted by the last minister of finance that the country is on a brink of collapse. He was asked to leave the office as economic situation worsened. It is for sure that the economy will slow down in the years to come with rising inflation and unemployment with a greater burden on working class. This is not the end but start to a scary economic story for Pakistan. The question stands here that who should be held responsible of the ongoing crisis.
Written by Muhammad Shaharyar Mujahid