Amidst reports that Pakistan is facing a dry economic situation, with dull growth, high inflation, and feeble external position, the approval of $6 billion bailout package for Pakistan by Executive Board of the International Monetary Fund (IMF) and immediate release of $1bn to ease a sustained pressure on the country’s foreign exchange reserves comes as a fresh wave of air. The three-year US$6 billion loan to support Pakistan’s economic plan, will help return sustainable growth to the economy and improve the standards of living by embracing reforms to nurture stronger and more sustainable growth. IMF Board approved $6 billion Extended Fund Facility (EFF) for Pakistan will not only support economic reform program but also broad-based growth by reducing imbalances in the economy. Social spending has been reinforced to fully protect weak segments. The government’s structural reform agenda of improving public finances and reducing public debt through revenue reforms is a main part of the program. The IMF support augurs well for the country and is an evidence of the government’s resolve for guaranteeing financial discipline and sound economic management. The approval follows an austerity budget that the PTI government divulged in parliament last month, committing itself to big expenditure cuts and enhanced tax collection to decrease seven per cent budget deficit. In May, Pakistan and the IMF reached a staff-level pact on a new three-year, $6bn bailout package after months of negotiations. The agreement approved by the IMF board of directors aims to boost Pakistan’s public finances and stabilize its slackening economy. The late package is Pakistan’s 13th bailout since late 1980s. This deal with the IMF would also open up the doors of the global market for Pakistan. It will jolt the country’s economy into shape by lessening domestic and external imbalances, refining the business atmosphere, firming up institutions, augmenting transparency, and shielding social spending. To prove its commitment to the austerity drive declared with the budget, the government has lowered natural gas subsidies, triggering prices to jump by some 200pc. The reforms consist of raising interest rates to control the country’s 9 per cent inflation and devaluing the rupee to expand exports and condense imports to bring down the existing account deficit of some $11bn. These steps are meant for stabilizing Pakistan’s instable economy, although they may diminish growth in the short term. Although such measures could cause a temporary rise in the cost of living while a crackdown on tax evasion could also miff the government’s popularity. But the present ruling setup of Imran Khan’s government has a mandate until 2023, which gives it enough time to remove the impact of these austerity steps and profit from the long-lasting economic sustainability the reforms would generate.
The reforms consist of raising interest rates to control the country’s 9 per cent inflation and devaluing the rupee to expand exports and condense imports to bring down the existing account deficit of some $11bn.