By Sardar Khan Niazi
Prime Minister Shehbaz Sharif expects an agreement with the International Monetary Fund (IMF) this month, after which other multilateral lenders would also support the country to help mitigate its economic crisis.
The premier’s comments follow the IMF’s announcement of fielding its staff mission to Pakistan on Jan 31 for talks for the ninth quarterly review of a funding program pending for almost four months.
The IMF’s decision 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.
The Fund is sending its officials to conclude the discussions on the pending review of the program after three months and only after the State Bank lifted the administrative restrictions on the exchange rate. The review completion would ensure releasing $1.2 billion for the country facing a severe cash crisis.
Despite the fact that Pakistan is currently experiencing tremendous economic strain, opportunities always come with obstacles. The government may find it difficult politically to abide by the IMF’s stringent requirements, but the seriousness of the situation necessitates the continuation of the IMF’s current program.
With the carrying out of the IMF’s demands, the public will experience a new wave of inflation. Petrol and diesel price has already increased. In light of the upcoming scenario, Islamabad has requested the US government to utilize its diplomatic might to persuade the IMF to adopt a lenient stance toward Pakistan.
Despite the fact it is crucial to seek immediate IMF funding to shore up its reserves, the government should not focus only on short-term relief. The current loan package is set to end on June 30, and if there is 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 program, and extend its duration. There is a kind of national consensus on the need for IMF dollars for stabilizing the economy and boosting foreign currency reserves.
In the previous three months, even friendly countries have made it increasingly clear that they are ready to help us only if we follow the IMF path. The former PM Imran Khan also has lent his support to a deal with the Fund, so the government does not 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 several times before, the IMF is no cure for our economic problems. An IMF program can at best provide space for executing deep structural reforms needed to correct course and put the staggering economy on a sustainable growth path.
Definitely, the free float of the home currency followed by the implementation of the strict IMF program conditions that require a big increase in energy prices and taxes will result in hyperinflation in the country.
With the affluent having the skill of finding a way to deal with the undesirable effect of such adjustments, the greater part of the price, like in the past, the common people will have to pay. While street uprisings are only a remote possibility at this time, these may soon become a reality should the ruling elite disappoint the people.
