Will the IMF Loan Solve All Problems of Pakistan?

Pakistan is under some serious crisis, evident from the rupee falling down against the US dollar and the stock exchange is crashing. Till now the government is not able to have a full hold of the economic crisis in Pakistan. The overall situation has become worse with the abrupt scramble of the electricity and gas bills. This overall situation has badly impacted the middle and lower-middle-class families as the basic commodities are also affected due to high inflation. With this declining situation, the only solution left is Monetary Fund (IMF). However, upon opting for IMF loan, the falling rupee against the dollar will continue and will further damage the economic condition of Pakistan.

Upon opting for IMF program, positivity will hug Pakistan for providing cheap loans to shore up the country’s ever decreasing foreign reserves however according to a report, the external and fiscal challenges will still remain same. Let’s accept, technical support from the IMF will be helpful for the government to achieve macroeconomic stability and different structural reforms. But let’s not forget that Pakistan will still face extreme challenges related to investments, imports connected to the projects under the China-Pakistan Economic Corridor (CPEC).

The external imbalances of Pakistan had reached to the height when Pakistan’s IMF program finished in 2016. At that time, the dollar reserves had fallen from $18 billion to $8 by the end of the fiscal year, but alas, covering only two months of good imports.

So why Pakistan has reached to this situation now? It is just because of a huge current account shortage. The reason being, our imports are more than thrice to our exports which means that for every dollar we ear, we spend $2.2. This situation is alarming, as, in FY 2018, the goods imported were $55.8 billion, but the exports were $24.7 billion.

No, the IMF loan will not solve all the problems of Pakistan- We need to do more!

Government’s high spending have also contributed to a macroeconomic imbalance that Pakistan is facing today. The situation will get worse if the government will likely to continue spending more and earning less. It only leads to an annual deficit of around 2.2 trillion. So the government allocated fund for the development of the country is reduced, and for it, it has to borrow money. But the thing is it borrows more to pay for the previous debts and this cycle continues for years now.

To cater to this situation, the central bank has denigrated Pakistani rupee 25 percent approx. with respect to dollar and the interest rate is brought up by a cumulative 2.75 percent. The IMF program will not only bridge the financing gap but also it’s a good signal to other sectors that are striving to meet financing requirements in the coming years.

Now the government needs to implement a reform based policy agenda for raising economic competitiveness.  However one can easily foresee that fiscal risks will remain the same, in fact, they will increase to an unexpected point. So there is a dire need to make some macroeconomic adjustments.

For a long time, the present government tried not to seek help from the IMF instead kept on asking for the same from Islamic Countries. Finally, the “begging bowl” is thrown towards IMF for a bailout package. Each and every government has done it for ages and its PTI’s turn now. Tough it should be done before. There is nothing wrong with seeking help from the IMF as long as one knows that it’s a short term help.

Why Pakistan will have to seek Help from IMF again, again and Again

However, the government needs to understand that creating jobs in the IT industry or building five million houses will not change the situation of Pakistan. This is high time that their government should understand that Pakistan’s economy cannot depend on anyone sector instead of other sectors such as textile and agriculture also needs to be revitalized to increase or diminishing exports. No doubt, the youth of Pakistan is its assets and they should be provided with opportunities but not in any one sector. The people who leave the country to work somewhere else contribute to gross national product but we need to do much more for the people who decide to stay in Pakistan.

In order to solve all the economic crisis, the IMF cannot do wonders as a whole. For example, we need to work on controlling our population which will, later on, contribute to the economy of the country. We need to implement some policy like China’s one kid which will stop the growing population.

People who are investing in property are just blocking investment. Such investments only make the rich richer while leaving common people in the same crisis as before. When this country was in crisis, investors bought dollars before it inflated against the rupees and stockbrokers sold their shares when the stock exchange was about to crash. SO the overall burden was faced by the common man in the form of high prices and inflation.

Will Pakistan able to divorce the previous Debts without IMF Help?

For sustainable development, implementation of the progressive taxation system, and eradicating corruption from the routes will make a difference however there is something even more important, that is the accountability of previous loans. According to some analysts, Sustainable solution to all problems of Pakistan lie is structural reforms.

Only time will tell the actual picture!

You might be interested in the Impact of IMF Loan on Pakistan’s Economy. Click here to read it.