Pakistan has been negotiating with the International Monetary Fund (IMF) to get a multi-billion dollar loan deal to sustain a reform program in the economy, Minister of Finance Muhammad Aurangzeb disclosed in a media report. The talks meter Pakistan amid its $3 billion one-year-old, nine-month program of the IMF loan held for the state’s default prevention.
The loan agreement consists of three tranches totalling $1.1 billion, and the final tranche of this stand-by arrangement will be released after completing a review that began on March 17.
Pursuing an Extended Fund Facility
Mr. Aurangzeb stated a want of Pakistan to enter negotiations concerning “a larger and longer” loan program from the IMF that is under the Extended Fund Facility (EFF) frame. The EFF helps countries which show the balance of payments problems in the short run. This is primarily due to situations like the country’s structural weaknesses. It takes time to correct structural problems.
However, without revealing the extent of new loans the government is planning to seek, Ambassador Aurangzeb declared that he will be travelling to Washington D.C in April and will take part in the IMF and World Bank’s spring meetings, which will be held in the same city.
Economic Challenges Persist Despite IMF Support
For the last two years, over four hundred million people in the nuclear-armed state of Pakistan have been struggling to endure the current economic and political crisis. Notwithstanding that it secured more than 20 IMF loan operations during the past, the same country this time faces an alarming decrease in foreign exchange reserves, a continuation of the balance of payments crisis, a high inflation index, record scale currency depreciation and persistent political anarchy.
The existing foreign reserves are a mere $4 billion and hardly sufficient to cover a month’s import of commodities. Although external debt payments of USD 20 billion in Pakistan in the current fiscal year will pose a severe economic burden, it still requires significant reforms.
Reforms and Tough Measures Expected
More taxation will be introduced alongside expanding the scope of tax-net under IMF conditions, stated economist Safiya Aftab, as such strict measures are believed to be required by the new IMF bailout designed to address structural weaknesses in the country’s economy. Aftab also noted that the IMF’s short-term strategy would contribute to a rise in inflation and many additional financial burdens on the part of the public.
However, that the government’s hands are tied and must fulfil the IMF directives. One of the interventions is to privatize government-owned enterprises to get revenue for the state and cut down expenses. With Pakistan endeavouring to reap some relief from the hands of the IMF, the country is entangled in a list of challenges in the longer run to stabilize the economy, which likely consist of massive reforms and tightening of a financial knot shortly.
