THE IMF decision to send its mission to Pakistan next week to discuss the resumption of its stalled bailout package should clear uncertainty and mitigate the risk of a sovereign default that appeared imminent with foreign exchange reserves lately dropping to just $3.6bn.
That the Fund is sending its officials to conclude the discussions on the pending review of the programme after three months and only after the State Bank lifted the administrative restrictions on the exchange rate to let the rupee discover its market value against the dollar shows that the government is unlikely to win any significant relaxations from it.
While it is crucial to seek immediate IMF funding to shore up its reserves, the government shouldn’t focus only on short-term relief.
The current loan package is set to end on June 30, and if there’s no new snag, we will get up to $3bn in funding from the lender. This may take care of our immediate balance-of-payments needs but will not be sufficient to cope with a similar payments crisis the next fiscal year and beyond. It is, therefore, advisable that the government seek to increase the size of IMF funding and the programme, and extend its duration.
There is a kind of ‘national consensus’ on the need for IMF dollars for stabilising the economy and boosting foreign currency reserves.
In the last three months, even friendly countries have made it increasingly clear that they are ready to help us only if we follow the IMF path. With former PM Imran Khan also having lent his support to a deal with the Fund, the government doesn’t have to fret about opposition to such a plan.
The extended loan period will not only ensure that bilateral and multilateral funds keep flowing beyond the term of the present political set-up but will also enable the next government to carry on with the reforms without a break or going back to the Fund for a fresh package.
As pointed out multiple times before, the IMF is no panacea for our economic problems. An IMF programme can at best provide space for executing deep structural reforms needed to correct course and put the teetering economy on a sustainable growth path.
Indeed, the free float of the home currency to be followed by implementation of the strict programme conditions that requires a large increase in energy prices and taxes will result in hyperinflation in the country.
With the rich having the knack of finding a way around the negative impact of such adjustments, the bulk of the price — like in the past — will have to be paid by common Pakistanis. While street riots are only a small possibility at this point, these may soon become a reality should the ruling elite again fail the people.
Published in Dawn, January 28th, 2023