The Deal between Pakistan and IMF

At the present moment, the economy of Pakistan is completely debt-strapped. Pakistan barely has any foreign exchange to pay for its imports. In 2019 itself, Pakistan has already borrowed $9.1 billion from Saudi Arabia, and China The plight of the Pakistani economy, as well as the Pakistani populace, is well known all around the world. The fact that Pakistan has already borrowed eight times from the IMF in the past two decades tells volumes about the disastrous economic condition that the country is in.

Pakistan has now been trying to negotiate the terms of the latest deal with the IMF. However, these negotiations are not working out fine for Pakistan. The IMF wants Pakistan to immediately take swift and decisive steps which may be unpopular. However, the Imran Khan led government is warning the IMF that its insistence on the implementation of some steps may be viewed negatively by the Pakistani population.

This has led to an impasse between the two entities. This is the reason that the much needed IMF loan is being delayed for Pakistan. Also, Assad Umar, the finance minister of Pakistan, has resigned because of his inability to conclude the negotiations with the IMF. It is unlikely that the IMF will back down. They are used to dealing with countries that have gone on a spending binge in the recent past. Austerity measures are obviously painful for such countries. However, the IMF has its way of forcing austerity. It has already done so in countries like Greece.

In this article, we will have a closer look at some of the conditions which are being laid down by the IMF in order to provide a $9 billion bailout package to Pakistan.

High Taxation: The IMF believes that the primary reason that Pakistan is able to pay off its loans is that the government does not generate enough revenue. Enough revenue is not generated by the government because the taxation system is weak. Most of the economy of Pakistan operates on cash transactions. As such, it is relatively easy for smaller businessmen to avoid the tax net completely. The IMF wants to change this situation. It wants the government to dramatically increase its tax collections. This is the reason why the IMF has proposed the lowering of taxable income from 12 lakh PKR to 4 lakh PKR. This would bring a lot more people under the tax net. The IMF has also proposed raising the tax rates drastically. Both these measures are unpopular, and Pakistan’s government is actually unwilling to implement them.

Inflation: The IMF is also insisting that Pakistan’s government implement a lot of policies which can be said to be inflationary. For instance, the IMF wants the Pakistani government to revoke any tax concessions which have been provided for electricity and gas. These incentives total to about PKR 140 billion. The IMF insists that the Pakistani government must raise this money by increasing prices for consumers. The Pakistani government has started implementing these measures on a small scale. However, these changes have obviously not been received well by the Pakistani public.

Full Disclosures: The IMF is also concerned about the secretive nature of the dealings between China and Pakistan. China has supposedly loaned out $62 billion to Pakistan for the ongoing China Pakistan Economic Corridor (CPEC) project. Also, there are a lot more complex financial transactions between the two nations. For instance, China has loaned out close to $7 billion in commercial loans to Pakistan. Also, it has made a huge deposit of $2 billion in the central bank of Pakistan.

The two countries also have a lot of opaque defence dealings. Their financial transactions pertain to development of nuclear power plants and procurement of submarines. The two countries have also been engaged in the production of JF-17 fighter jets.

The IMF is concerned that Pakistan will use all the loans it receives to pay off earlier loans taken from China. Hence, a loan to Pakistan would end up being a loan to China and would not be of any use to the Pakistani population which is facing a massive economic crisis as of now. Hence, the IMF wants Pakistan to give a written guarantee that none of its funds will be used to pay off China. Also, it wants Pakistan to disclose more details about its financial transactions with China. Both these conditions are not acceptable to Pakistan. This is the reason that the standoff between Pakistan and the IMF continues.

Market-Based Exchange Rates: The IMF also insists that the central bank of Pakistan stop controlling the exchange rate of the Pakistani rupee. They want the exchange rate of the Pakistani rupee to be completely market-based. However, Pakistanis have already witnessed a sharp decline in the value of the rupee vis-à-vis the dollar. They are unlikely to agree to this condition. This is because if the rupee declines further Pakistan would end up paying a lot more since the loan is being taken in dollar terms.

Monitoring Gold Sales: Lastly, the IMF is also wary that the money given to Pakistan would end up in the hands of terrorists. As a result, it is asking Pakistan to create a system whereby the flow of money can be monitored. As a part of this policy, the IMF is asking Pakistan to not sell gold to any private party who does not pay money via a verifiable bank account. Terrorists have been using gold to fund their operations. This move by the IMF is aimed at curtailing terror financing. However, many Pakistanis are viewing it as an incursion on their basic economic rights.

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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


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