THE government and the market are jubilant over the ‘successful conclusion’ of a new loan of $5.3bn from the IMF. And why not? The loan will ease pressure on diminishing foreign exchange stocks and relieve the government of worries of how to repay over the next 12 months what the country already owes to the Fund. But is it really a ‘step forward’ for the new government, which had promised voters so much? Although the announcement of the agreement on the loan hides more than it reveals, from whatever has so far been divulged it is clear the people should brace themselves for greater hardship. When Finance Minister Ishaq Dar said a “better tomorrow dawns only when the requisite pains are borne today”, he was signalling towards a tougher future for the people in whose name the loans are secured and who must repay these generosities with sacrifices.
The help from the IMF is necessary not only to repay its existing debt but also to obtain budgetary support from other multilateral lenders. However, the government has not lived up to its pledge of not accepting tough conditions, such as the ones which would raise the energy prices to prohibitive levels, stifle investment and fuel inflation. All the high talk that Mr Dar had indulged in over the last few days was little more than rhetoric to begin with. Some of the steps demanded by the IMF had already been incorporated in the bud-get — raising tax revenues (albeit through the old practice of burdening existing taxpayers), liquidation of the power-sector debt, etc. Others, like a hike in borrowing costs and increase in electricity and gas prices, have also been initiated and now the gap will have to be met before September when the Fund holds its meeting to give the final nod.
Still Mr Dar is not sure if the Fund will give him the additional $2bn — over and above the amount agreed on so far — he desperately needs to match the foreign exchange outflow. Nor is anyone certain if all the provinces —– especially Sindh and KP where the PML-N’s opponents rule — will agree to cut their expenditure to cut fiscal deficit to 6pc from the budgetary target of 6.3pc when the minister takes the agreement to the Council of Common Interest for broader political ownership, which is another condition for the loan. The IMF loan and support from the other lenders will provide only some breathing space for the government. It will have to take measures that hurt if it wants to fix the economy.