Pakistan Reportedly Agrees Multi-billion IMF bailout

Pakistan has struck a deal with the International Monetary Fund for a $6 billion bailout for a period of three years.

The purpose is to shore up the weak public finance sector and help strengthen the economy.

The IMF board is yet to approve the agreement and if it manages to go through it will be the 13th such approval since the 1980s.

Since last year, Imran Khan’s government has been trying to avoid a bailout. The country was seeking huge billions from other countries like China and the United Arab Emirates to repay its loans.

The rupee has not been doing well for the past one year, depreciating by a third of its value. There has been increased inflation to over 8 percent and the country’s foreign exchange reserves could not cover for export for up to two months and that’s when IMF became their next option.

The prime minister has reshuffled his economic team amid the negotiations between IMF and Pakistan. The former IMF economist Reza Baqir has taken the position of the central bank governor in place of Tariq Bajwa. The new finance minister is Hafeez Shaikh.

 

In a statement, the IMF highlighted a problem that for a long time has affected Pakistan. With the new program, public finances are going to be better and reduce public debt. There would be “revenue mobilization measures” which will ensure there are no tax exemptions, curb special treatment as well as improve tax administration.

It has also come up with a cost-recovery plan to keep in check the energy sector which has accumulated a huge amount of backlogs straining government resources.

The upcoming budget aims for a primary deficit. There will be no capitation for debt servicing costs.

In addition, the IMF suggests that the savings allow for substantial increment in social spending which is likely to see growth in infrastructure as well as human capital development.

The central bank targets to minimize inflation while safeguarding stability. The State Bank of Pakistan remains to be an independent entity.

The IMF has in the past been advocating for Pakistan to utilize a flexible currency policy which will help in doing away with the chronic boom-and-bust cycles.