Even though a regular IMF client used to succumbing to harsh conditionalities associated with the loan programmes it negotiates with the former to break the cycle of financial crashes and bailouts, Islamabad is reported to be uncomfortable with the two demands presented by the lender. But, as they say, there is no such thing as a free lunch. The country appears to not have the stomach to say a straightaway ‘no’.
The IMF’s insistence on the two demands seems driven by the fact that Pakistan faces a high and unsustainable public debt that is set to hit 90% of the total value of the national economy. The outbreak of the deadly novel coronavirus has exposed vulnerabilities of Pakistan’s economy that had already been struggling owing to weak economic foundations that caused fiscal and current account deficit crisis after every four to five years.
Owing to the prevailing tight fiscal situation, growing public debt and Pakistan’s decision to seek debt relief from G20 countries, the IMF was asking Islamabad to freeze salaries of government employees, said sources in the Ministry of Finance. However, the government is resisting the demand due to high inflation that has eroded people’s real income.
. The finance ministry is keen on the restoration of the IMF programme and is holding video conferences with the IMF staff in Washington. Let us hope the two sides strike a mutually convenient middle path.
Published in The Express Tribune, June 8th, 2020.
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