Pakistan has recently received a $700 million loan from the International Monetary Fund (IMF). The second tranche of the loan was approved by the IMF Executive Board after a successful review of the first installment, bringing the total disbursements under the $3 billion Standby Arrangement (SBA) to about $1.9 billion. The debt-ridden South Asian economy is currently running on an ad-hoc basis by the caretaker setup until the transition of power to the publicly elected leadership by the end of the next month. Due to the unique political situation, the International Monetary Fund (IMF) faces tough choices on how to assess Pakistan’s debt situation and how to deal with the country in the aftermath of the February 8 elections.
At the moment, Pakistan’s economy needs periodic injections of bulk finances to address its acute fiscal volatility and tackle long-standing economic issues on a sustainable basis. To secure the bailout, Pakistan had implemented tough IMF-proposed measures including a sharp revamped budget, a record hike in interest rates, and painful increases in electricity and gas prices. In addition, the IMF asked Pakistan to raise $1.34 billion in new taxation to meet monetary adjustments, the measures that sparked headline inflation to 38 percent, which still hovers at 30 percent or above.
Historically, Pakistan faces a shortage of funds dearly needed to pay its import bill, repay its foreign debts, and maintain a minimum threshold of foreign reserves at the national level. Previously, the country fulfilled its urgent fiscal needs through the IMF’s $3 billion Standby Arrangement and crucial assistance from friendly nations including Saudi Arabia, China, the UAE, and Qatar to bridge the financial gap. However, the newly elected government would face similar challenges after assuming office, while no leader has the plan to get rid of the loan trap and steer the country out of persistent economic ailment through alternative arrangements by using national resources, exploration of minerals, oil deposit and investment in human capitals, etc.
Since liberating from British colonial rule in August 1927, Pakistan has sought IMF bailouts 23 times in the past 75 years, reflecting the high unpredictability and continuous unsustainability of its economy. The cyclical nature of seeking IMF assistance highlights the intricacies of managing Pakistan`s economic affairs, a lack of fiscal discipline, and the imbalance in government revenue and public spending. The delicate balance between external assistance and long-term economic independence remains a major challenge for Pakistani economists to chart a sustainable path forward and adhere to it strictly.
In fact, the IMF’s programs have serious repercussions for the South Asian economy, specifically, concerning rising inflation, poverty, unemployment, low growth, and balance of payment problems. The IMF loans often lead to foreign dictation, cause a policy conflict, and impact domestic growth creating long-term dependency on global lenders. Unfortunately, Pakistani economists failed to address structural and management problems that led to unceasing unsustainability and periodic collapse of the national economy over the past decades.
There is a dire need for a national debate of the political leadership, economists, and civil society to deliberate on the real circumstances that caught the country into a cyclical paranormal comprising temporary economic gains, bulk circular debt, gradual collapse, and initiation of a begging campaign by the governments at frequent intervals throughout the past. There must be political consensus on the national economy and red lines must be drawn for future political leaders not to detract the national economy through politically motivated economic policies, poisonous subsidies, and use of nepotism in governmental affairs so this nation comes out of persistent economic degradation and moves toward affluence and prosperity.
