The International Monetary Fund (IMF) has approved a $ 500 million installment under a Pakistan bailout package.
It may be recalled that the $ 500 million installments are being released after an agreement was reached between Pakistan and the IMF on this staff-level agreement, which was agreed upon by both the parties in February this year.
The 500 million installments are being released to Pakistan under the Extended Fund Facility (EFF). The IMF and Pakistan signed it in July 2019, approving a $ 6 billion loan from the IMF to Pakistan to support the country’s external payments and sustainable economic growth.
The IMF’s current program with Pakistan was postponed after Pakistan asked in February last year to postpone further hikes in power sector rates until June under IMF conditions. The IMF could not conduct a second review of the program.
When the Coronavirus epidemic affected Pakistan and the rest of the world, further payments from the IMF under this program were postponed—provided $1.4 billion to protect against the effects, which is not part of the program.
The resumption of the IMF program for Pakistan will add $500 million to its foreign exchange reserves. On the one hand, and the other hand, economists and industry and trade experts, and their allies are concerned about its conditions. According to them, this will severely affect the economy of Pakistan.
Terms and Conditions of the program:
There are some conditions for the resumption of this program by the IMF. These conditions include significant amendments to the Electricity Act, namely the NEPRA Act, amendments to the State Bank of Pakistan Act, collection of additional taxes, and an increase in electricity and gas tariffs. And the elimination of subsidies to various sectors.
Pakistan’s federal cabinet earlier this month approved amendments to the SBP Act, which is part of the IMF’s terms to give the central bank more autonomy.
In this regard, the federal government is amending the SBP Act through an ordinance and an ordinance to abolish tax exemptions to collect additional taxes through it, which is part of the IMF’s terms. ۔
The federal cabinet has also approved an ordinance to amend the NEPRA Act and a few days ago to increase the power tariff by at least 5.65 per unit.
How important is the revival of the IMF program?
Growth in Pakistan’s economy, which had been negative in the last financial year, has shown some improvement signs over the past few months.
But concerns have been raised about the negative impact on the economy of the conditions associated with the IMF program’s resumption.
Asked why the program needs to be revived, economist Khurram Hussain said Pakistan is an emerging country, but its resources are not enough to go beyond its resources.
“Pakistan gets a loan from the IMF and this loan cannot be obtained without fulfilling the conditions,” he said.
“The resumption of the IFF program will encourage the confidence of international financial institutions and foreign investors in Pakistan and will open new lines of credit for Pakistan,” he said.
“The resumption of the IMF program will also help Pakistan get out of the FATF gray list as it will earn the trust of the international financial institutions,” he said.
According to Khurram Hussain, if there are structural reforms in the economy through the IMF program, it will only benefit the economy and create employment opportunities to help the common person.
Chairman FIEDMIC Mian Kashif Ashfaq has said that Pakistan should complete this program and should not leave it in the middle.
Commenting on the IMF’s terms, he said that the IMF should also reconsider as the economy is suffering due to the coronavirus.
He said the IMF could have been better negotiated to revive the program.
How detrimental can the resumption of the IMF program be to the country’s economy?
According to some economists, the resumption of the IMF program will provide Pakistan with $500 million, which will boost Pakistan’s foreign exchange reserves and support the value of the Pakistani rupee against the dollar.
The considerable cost of these $ 500 million will have to be borne by Pakistan in the form of economic losses as the implementation of the conditions will affect the economy of a common person and the industry and trade.
An Economist from Faisalabad Chamber of Commerce and Industry said that the IMF’s relationship with Pakistan has changed compared to its relations with other countries as the IMF is directly controlling Pakistan’s economy.
He said that now we have entered the stage where the loan is not being obtained to help economic growth, but the loan is being taken to pay off the previous debt.
He said that in a real sense, Pakistan has technically defaulted because the repayment of the loan is the default.
He said that structural reforms under the IMF program would not improve the economy but would protect loan repayment.
For example, the emphasis is on raising additional taxes to make repayment possible.
He termed the conditions attached to the program’s resumption as a total loss-making deal for Pakistan’s economy and said that economic growth was not possible.
He said that the emphasis of the IMF’s terms is on how to repay the loan installments from Pakistan, which can be met by raising the maximum amount of money and amending the SBP Act’s rules.
He said the IMF would now be in direct touch with the SBP and would continue to enforce its terms through it.
He said that after the increase in gas and electricity prices and the end of tax exemptions, how will the economy grow.
He said that after these conditions, the debate on the country’s economic management is over and now the only thing that seems to be the same is that the cycle of debt will continue.
he said that repaying the loan is the right thing in commercial and IMF loans, but loans are taken from the Asian Development Bank and the World Bank for projects.
How does Pakistan’s industrial sector view IMF conditions?
To offset the economic losses caused by the coronavirus globally, governments are providing incentives to their industrial and commercial sectors to boost economic growth.
The collapse and the increase in electricity and gas prices are being hailed as an alarming development for the economic situation, especially for the industry and trade sector, which will undo some of the improvements that have come so far in the industry.
The Karachi Chamber of Commerce and Industry (KCCI) president said the government’s increase in electricity tariffs and reduction in tax rebates would increase the business cost of the manufacturing sector, which would make its products more expensive.
He said that additional taxes would be levied on those sectors that were already paying taxes under IMF conditions.
He said that the industry’s current state could not bear the additional burden, and the result would be more difficulties for the industry.
What is the position of the government?
What are the implications for the economy of reviving the IMF program and implementing its terms?
In this regard, Federal Secretary Finance, while giving his position, said that the concerns being expressed regarding the resumption and conditions of the IMF program are all baseless.
When asked about the impact of the economy’s conditions, the hike in electricity and gas prices, amendments to the SBP Act, and the collection of additional taxes, he said on social networking site WhatsApp: The IM program is vital to economic and financial stability, especially in the face of uncertainty caused by the coronavirus.