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April 17, 2019

Dealing with the IMF


April 17, 2019

Deal done says Finance Minister Asad Umar after his return from Washington – despite no confirmation from the IMF yet. Speaking to the media on Monday, Umar said that Pakistan was getting, not one, not two, but three loans from international financial agencies. The finance minister promised that Pakistan would ink three loan agreements – with the IMF, the World Bank and the ADB – to the tune of about $20 billion over the next three years. The WB and ADB announcements were not expected, but it would appear that the government was negotiating with all three agencies together. The IMF alone will provide between $6 billion and $8 billion over three years, which is much less than the $12 billion that the government was asking for. Umar also confirmed that the government had made major concessions on five major policy areas: exchange rate, fiscal deficit, the energy sector, public finance and public-sector enterprises. The government also plans to make another bond issue after signing the IMF deal. The amount of money involved suggests that the government had been underplaying Pakistan’s economic situation. Moreover, with three IFIs holding Pakistan under their thumb, instead of one, room for manoeuvre is likely to shrink fast.

What would these deals mean for the Pakistani public and the country’s economy? Tellingly, the finance minister made sure to clarify that the IMF did not ask for cutting the defence budget. For the public, the news is not good. Asad Umar’s claim that prices will increase but the common person will not be affected makes no sense. Moreover, the part about not raising electricity tariffs once again seems more like wishful thinking. All reports from the government have suggested otherwise, as well as Umar’s own references to ballooning losses in the electricity and gas sectors. One of the great mysteries of Pakistan’s public-sector economy is how electricity and gas losses increase after significant tariff increases.

Speaking in parliament, the finance minister had insisted that the deal with the IMF had to take place in utmost secrecy in order not to jeopardise it, something that has led to outrage by the opposition who wish to be taken into confidence before a deal is signed with the IMF. In truth, the terms of the IMF deal need to be subject to public and parliamentary debate before being signed. This is the bare minimum the government owes to the public, which will in all probability suffer for the next few years. The idea that this IMF deal is likely to have a different outcome than the last thirty years of IMF-led structural adjustment is not coming across as obviously as the government seemingly thinks it is. With the IMF delegation supposed to visit end this month, the government still has time to put the conditions of the deal to public debate.

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