Fresh IMF deal a ‘political blow’ to Pakistan PM Imran Khan

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Pakistan has secured a multibillion-dollar bailout package from the IMF in a desperate attempt to get out of a crippling economic situation. But the road to strengthen the nation’s finances is tough. After months of difficult negotiations, Islamabad and the International Monetary Fund (IMF) declared on Sunday that they had reached an agreement on a fresh bailout package for Pakistan.

If the deal is approved by the IMF’s management, the South
Asian nation will receive $6 billion (€5.34 billion) in financial assistance
over a period of three years to stave off a balance-of-payments crisis. Abdul
Hafeez Shaikh, Pakistan’s de facto finance minister, told the state-run
Pakistan Television that he hoped it would be his country’s.

Under the deal, Pakistan would give up central bank control
of the currency to adopt a market-based exchange rate and take measures to
improve the functioning of loss-making state-owned firms as well as curtail
subsidies, among other things.

The World Bank and the Asian Development Bank would provide
up to $3 billion in additional assistance in pursuance of the IMF deal, Hafeez
Shaikh said. The economy of the majority-Muslim nation with a population of
over 200 million has slid deeper into crisis since Imran Khan took over as
prime minister last year. Burgeoning fiscal and current account deficits and a
dip in revenues from tax collection

“Pakistan is facing a challenging economic environment,
with lackluster growth, elevated inflation, high indebtedness, and a weak
external position,” Ernesto Ramirez Rigo, who led the IMF mission to
Pakistan, said in a statement on Sunday.

“The authorities recognize the need to address these
challenges, as well as to tackle the large informality in the economy, the low
spending in human capital, and poverty.”

A challenging environment

“Through the IMF bailout package, Pakistan will resolve
its balance-of-payments crisis. There is currently a financing gap of $12
billion and the bailout will help bridge the gap this year as well as in the
coming three years,” Minister of State for Revenue Hammad Azhar told DW.
Pakistan has gone to the IMF numerous times since 1980 seeking bailouts. The
country has had a tense relationship with the lender as the conditions attached
to the assistance are always unpopular.

PM Imran Khan initially appeared reluctant to approach the
IMF for aid, fearing that it would impose tough conditions on government
policy. Instead, Khan’s administration sought billions of dollars in help from
“friendly countries,” including Saudi Arabia, China and the United
Arab Emirates, to fix the nation’s finances. But with inflation climbing to
over 8%, the rupee losing a third of its value over the past year, and foreign
exchange reserves barely enough to cover two months of exports, it was forced
to turn

Growing discontent

Analysts have warned that any IMF deal would likely come with
strict conditions that could restrict PM Khan’s ability to fulfil his grand
promises to build an “Islamic welfare state,” as the country is
forced to tighten its purse strings. “The IMF deal, with the austerity
measures it will entail, will be a political blow to a Pakistani government
that had promised to build out a new welfare state,” Michael Kugelman, a South
Asia expert at the Washington-based Woodrow Wilson Center for Scholars, told
DW.

“The IMF package will make it quite tough for Khan to
achieve his economic promises and therefore undercut the populist image that he
has sought to showcase to the electorate,” he added. Khan came to power
last year after promising to improve the country’s economy and provide jobs to
people. This view is shared by Kaiser Bengali, a renowned economist in
Pakistan. “The IMF has an agenda to privatize the assets of the country,
which will lead to massive unemployment,” said the expert.

The bailout announcement comes as discontent is already
growing over measures Khan’s government has taken to fend off the crisis,
including devaluing the rupee by some 30% since January 2018, sending inflation
to five-year highs. Khan came to power after winning a simple majority in last
year’s parliamentary elections on promises to improve the country’s economy and
provide jobs to people.

But his critics say his government has so far not been able
to honor his commitment to the masses. A government report published on Friday
also noted that Pakistan’s growth rate is set to hit an eight-year low, with
the country’s GDP rate likely to sink to 3.3%t against a projected target of
6.2%. But some observers say the IMF package will be beneficial to end the
growing uncertainty and build investor confidence.

“The deal will put an end to uncertainty and improve
Pakistan’s financial situation,” Abid Sulehri, an economist, told DW.
“Even though it might have some negative effects, in the form of a rise in
inflation, it will produce positive results in the long run.”

US support?

When asked why China didn’t come to Pakistan’s rescue,
Minister Azhar said: “China has already been providing funding for
Pakistan’s trade and infrastructure development, and we opted for the IMF
funding so as to introduce structural reforms in the economy.” The United
States, which has tremendous influence over the IMF, warned last year that any
potential international bailout for Pakistan should not provide funds to pay
off Chinese lenders.

“Make no mistake. We will be watching what the IMF
does,” US Secretary of State Mike Pompeo said. “There’s no rationale
for IMF tax dollars, and associated with that American dollars that are part of
the IMF funding, for those to go to bail out Chinese bondholders or China
itself,” Pompeo added. It’s not yet clear if the bailout agreement reached
on Sunday enjoys Washington’s backing.

Pakistan’s crisis also comes as the country is facing
possible sanctions from the Financial Action Task Force an
anti-money-laundering monitor based in Paris 
for failing to rein in terror financing. The organization will soon
decide whether to add Pakistan to a blacklist that would trigger automatic
sanctions, further weakening its already faltering economy.

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