Emergency loans from financial organizations not to solve Pakistan’s problems must diversify its economic policies


Pakistan needs an economic policy overhaul as the country is facing the worst floods in its history, accompanied by a huge resource shortfall despite securing emergency loans from global financial bodies for reconstruction. Resource deficit pressure is mounting as Pakistan is unable to seek foreign aid or loans due to its underperforming economy with sluggish growth, twin deficits, falling exchange rates and runaway inflation, reported the Financial post.

Due to lackluster macroeconomic indicators, its sovereign credit rating slipped to below investment grade. Citing Pakistan’s weakening economic situation, Moody’s, Fitch and S&P Global – all major global rating agencies – downgraded Pakistan’s long-term rating from stable to negative in July. These agencies also pointed to the country’s weakening external position, rising commodity prices, depreciation of the rupee and tightening global market conditions. It is evident from the recent revelation of Finance Minister Miftah Ismail stating that “none of the friendly countries are ready to support Pakistan financially” because it “has an unbalanced economy”.

Recently, Pakistan secured the reinstatement of the IMF’s Extended Financing Facility (EFF) and the intention of the World Bank to bludgeon two of its political loans of over $1 billion and the indication of the Asian Bank of (AfDB) to provide about $1.5 billion in emergency loans. The problem actually prompted the Pak government to levy an unpopular super tax with three rates of Rs 3,000/-, Rs 5,000/- and Rs 10,000/- to collect a tax of Rs 41 billion from traders and an additional tax 5% on manufacturers. having a zero contribution to exports, reported the Financial Post, reported the Financial Post.

The IMF’s decision to extend the EFF until the end of June 2023 and rescheduling and raising the EFF to USD 6.5 billion would only provide temporary relief. The 7th and 8th tranches would release approximately USD 1.17 billion under the EFF for Pakistan. Islamabad experiences huge differences between imports and exports. And despite recent measures taken to ban the importation of various items, Pak’s imports continue to increase.

While policy makers in Islamabad are battling fires to manage the economy following catastrophic floods, funds arranged by the IMF to avert an external debt default are also causing a lot of pressure on the economy in due to strict conditionalities imposed on the country which has seen very fragile growth during the COVID-19 period and accumulated unsustainable debt and current account deficit over time, the Financial Post reported. In addition, IMF conditionality includes raising electricity tariffs, imposing an oil tax, greater revenue mobilization and expenditure restraint to reduce the budget deficit, maintaining compliance with the exchange rate determined by the market and the establishment of an anti-corruption task force to curb corruption within the government. departments.

Moreover, Pakistan is unable to increase its exports to overcome its permanent trade deficit. Due to a lack of diversification and value addition, many industries were unable to contribute to the country’s export basket but continued to import raw materials to meet the needs of domestic markets, the Financial reported. Post. To increase its exports, Pakistan needs to focus on its comparative advantage and collaboration with foreign companies that could contribute to industrial growth through technology transfer and provide capital for industrialization. Just relying on China didn’t help much and wouldn’t do well even in the future.

Pakistan also faces other pressures. The China-Pakistan Economic Corridor (CPEC) Power Purchase Agreements (PPAs) are a contentious issue between Pakistan, China and the IMF and the main condition is to “reduce the flow of circular debt by reducing costs electricity generation and redirecting electricity subsidies”. Pakistan cannot achieve macroeconomic stability until its electricity sector is repaired. The IMF has also flagged China’s sharply slowing growth as a major concern as its financial leverage, a key strategic partner, declines, the Financial Post reported. (ANI)

(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)


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