IMF’s harsh demands

Govt is struggling to strike a balance between continuing with fiscal consolidation and economic growth

Editorial June 08, 2020

The government employees had barely savoured the heart-warming news aired by a private TV channel that they are set to receive a raise of 20 per cent in their basic salary when Adviser to Prime Minister on Finance Abdul Hafeez Sheikh announces the budget on June 12, in comes the gloom-inducing bit of news that pours cold water on their expectations. This newspaper has reported, based on credible sources, that the International Monetary Fund (IMF) has urged Pakistan to freeze salaries of government employees and adhere to the fiscal consolidation path prescribed by the Washington-based lender by showing a nominal primary deficit in the new budget.

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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