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THE inevitable has to happen. When? It may happen next month, or take another couple of months. The Nawaz Sharif government has to knock at the IMF’s doors to obtain another loan to pay back in the next 12 months what is already owed to the lender. Finance Minister Ishaq Dar hinted at this eventuality several times in recent weeks. There’s no harm in taking new loans to pay off old ones, he was quoted as having said during his first briefing on the state of the economy his party has inherited from the previous government. The new loan will not raise the country’s stock of foreign exchange, which is sufficient only to pay the import bill for another three months. Nonetheless, it will stop further depletion of reserves, halt temporarily the erosion in the rupee’s buying power and in the confidence of the business community, as well as pave the way for more dollars from other global lenders for large infrastructure projects.

The government has already taken some steps in its first budget to meet conditions that the IMF is likely to attach to the new loan. These actions include a significant increase in tax revenues — although without expanding the base — a substantial reduction in electricity subsidies and liquidation of the power-sector debt. Some other measures like a hike in electricity prices and the reform of state-owned businesses including power generation and distribution entities to prepare them for sale will be taken in the next couple of years. All these actions will make the life of the common people more difficult because they are being asked to shoulder the chunk of the adjustments being made to make state finances more liquid. The wealthy have again been spared.

The previous government had also instituted similar initiatives when it signed the standby arrangement loan with the Fund in November 2008 to stop the run-on on the banks and the rupee. However, it had dithered from taking tougher decisions to reform and restructure the tax system, state corporations, power businesses, etc under political pressure from its allies and the opposition led by the PML-N. Five years hence, the country may again be standing at the crossroads unless a comprehensive plan for the economy is devised that moves beyond the regular recourse to the IMF. For starters, the new government must take difficult decisions to restructure the economy for sustainable and early recovery without considering the political fallout from its opponents or from the powerful and wealthy.

Comments (12) Closed

fida sayani Jun 21, 2013 04:52pm

IMF loan is an addiction for a sick country, just like narcotics is for humans. It is similar to Hari or farmer borrowing money from money lender. all are doomed for ever. Big talk from Muslim League leaders before election was hog wash.

pathanoo Jun 21, 2013 08:24pm

It is an endless game that would go on unless the Pakistani Government takes tough actions to implement economic and tax policies that will spur indigenous growth. Otherwise, Pakistan will be at the IMF door every year with a begging bowl in hand.

(Dr.) B.N. Anand Jun 21, 2013 09:02pm

Sir, it is a vicious circle of borrowing and paying the old loans and in the process one is always in bad debt which coming generations have to keep on paying continuously as long as the borrowing procees goes on. There is never end to this process until one earns from one's own investments or savings by adopting austerity measures. This is also what is happening in Europe where EU is always prepared to bail out. But in our region, there are no such arrangements. It is high time we people give up negative politics in our region and start being practical going beyond religion and other fanatic mindset. That requires big heart and stop being sadistic in having pleasure at others pains. BNA

The Failed Rebel Jun 22, 2013 01:36am

Pathetic are the hollow leaders of the current ruling party, just like nearly all their predecessors. This government based their campaign on promises that they will bring all the defaulters to justice, now why isn't there a crackdown going on?

Oh wait, I remember now. PML-N always keeps its black sheep safe. Needless to say, black sheep are the same regardless of the government that rules Pakistan, the greed-class.

I don't believe in imposing taxes specifically on the elite class, why? That would be unjust. Just because someone has a good financial condition doesn't mean he has to suffer for it. But the defaulters amidst them should be brought to court, and their resources should be shredded off from them and given to the people who rightly deserve a sigh of relief.

Terry Jun 22, 2013 05:04am

Nawaz will build bullet trains connecting Karachi with Peshawar, Lahore and Islamabad with all these borrowed money. He is an honest mand will keep his word.

Asad Jun 22, 2013 01:51pm

Its' surprizing that ML has not done any homework. It does not have any Foreign Minister. Interior Minister is more concernd about street loafers outside Islamabad eatouts than Terrorism. Finance Minister does not have any new idea. Punjab CM attending Federal Cabinate meeting (eating something during the meeting).I doubt very much it will complete its tenure.

Ameeds Jun 22, 2013 01:59pm

Why not to fix the tax system and not beg? Wasn't it dawn that reported couple of months ago that special tax benefits given to certain importers is causing nation an estimated 1 billion loss per day.

Until and unless we do not stop giving preferential treatment to some, we will continue to to beg.

Law makers of Pakistan are the main Law Breakers in Pakistan as well. :-)

Asifalinaz Jun 22, 2013 03:33pm

@fida sayani: It os really crucial time for the country and we must assist our dumb politicians so they could bring our country on the trck of progress. In this regard, we must avoid abusive words and follow the moral principles as prescribed in Islam. When will we become Pakistani rather thn punjabi, sindhi or else. Unfortunately, the new trend of PMLian and INSAFIAN have started...........hapless country and...............hapless nation

bubba Jun 22, 2013 07:23pm

The govt of Pakistan should explain the economic realities to it's people. No country can spend more than it makes on a continual basis. Pakistan needs to expand it's tax base, cut back it's spending, and start to collect taxes, utilities and other basic charges which people have ignored for along time. The "free lunch" has ended.

Mark Jun 23, 2013 10:50am

What does IMF get by giving loans to Pakistan? Do they earn interest, which they the end of the day..or the year..or whatever? Does Pakistan ever return the interests, principles, etc?

Suz Jun 23, 2013 10:28pm

@Terry: Whats benefit out of those so called "bullet trains" which are going to be adopted by borrowing heavy interest loans from IMF, at the cost of shattered financial condition of Pakistan's poor populace!! If a person is not having meals to feed him, would it be wise to buy an aeroplane to tarvell in?? We need to address the core issue of poverty and terrorism and to curb both of them , a healthy and stable economy is needed. Which at least could not be dreamed of in the presence of high interest IMF loans!!

Shehzad Zafar Jun 24, 2013 01:34am

@fida sayani: Mr Khadim-Ala said that IMF is knocking on doors of Pakistan. What a class actor he is.