impactofimfloanonpakistanseconomy-1905240826101.pdf -...

This preview shows page 1 - 7 out of 14 pages.

MAY 24, 2019Impact of IMFLoan onPakistan’sEconomyIn long run and shortrun
2Impact of IMF Loan on Pakistan’sEconomy
3IN LONG RUN AND SHORTRUNFor decades, Pakistanhas had chronic problemscollecting tax and the programenvisages reforms to improvepublic finances and cut publicdebt. However, failing to copewith these issues Pakistanigovernment had to resort totaking loan. Hence underleadership of Prime MinisterImran Khan the governmentsigned loan agreements withSaudi Arabia, United ArabEmirates,China & IMF.To keep the balance ofpayments in check and to meetthe financial obligationsgovernment of Pakistanunfortunately always resort totake loans hence thegovernment has now resortedto IMF.The primary purpose oftaking loans from the IMF isthat Pakistan’s Governmentwants to stabilize itsdeteriorating economy,Figure1:Economy of Pakistan
4exchange rates and balance of payments, however this relief is short-term and usuallyyields a new crisis in long-term as the debt matures and the government gets into amonetary crisis again due to inadequate raising of dollar in the federal reserve. IMFprovides huge amount of loans for such purposes, which seems very lucrative andattractive offer at first sight for a short-term perspective.“Entering the programmewas essential because it would allow you toraise money from the other avenues, It gives an assurance to all the other playersin the market that now you can support Pakistan because it’s getting disciplined-SaadBin Ahmed” (Hasan, 2019)Pakistan and IMF have signed 22 agreements for loans since 1958 comprising of10 programs under PRGT (Poverty Reduction Growth Trust) and GRA (GeneralResource Account) of IMF and 12 bailouts. The current 39-month bailout plan hasraised the figure by $6 billion and is the 13thtime Pakistan has gone to IMF since1980’s. A part of the bailout will be utilized to pay back policy loans from the WorldBank and the Asian Development Bank.
5This bailout has laid several conditions on the Pakistani government includingthose on taxes and subsidies, government spending, interest rate and foreign exchangerate butthe most stringent condition laid by IMF for Pakistan was to account in detailthe Chinese financial outlay in China Pakistan Economic Corridor and give firmassurances that Pakistan will not divert IMF loans to service its China debts. Pakistanneeds $12 billion this year to bridge the gap between its foreign currency holdings andwhat is required to pay for loans and imports.The IMF wants us to raise our revenue income by Rs700 billion in the firstyear of the 39-month-long programme. The IMF will closely monitor theimplementation of these reforms on a quarterly basis. In a situation of default inthe implementation process, the IMF can stop the next tranche of the loan toFigure2:IMF Loans till date in SDR
6Pakistan. This means that the promised $6 billion would not flow as a lump sumamount. It will be paid in several installments. (Ayaz, 2019)

Upload your study docs or become a

Course Hero member to access this document

Upload your study docs or become a

Course Hero member to access this document

End of preview. Want to read all 14 pages?

Upload your study docs or become a

Course Hero member to access this document

Term
Spring
Professor
N/A
Tags
Debt, International Monetary Fund, foreign exchange reserves

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture