The IMF way

IMF's $7 billion lifeline for Pakistan brings relief but raises concerns over growth, high tariff, and economic reform

The deal with the IMF is finally done paving the way for a lifeline tranche of $7 billion. The Fund's nod that it has listed Pakistan's case for September 25 is a good omen, and clears that path to a new bailout programme, which is 24th of its kind but with little hope of putting the economy back on track. The conditionalities that have been agreed with the Washington-based lender are too pinching and have come with a cost. It will go on to further penalise an already burdened salaried class, and milk the traders and entrepreneurs who are in the tax slab. Moreover, the government's understanding with the IMF that it will do away with subsidies for the industrial sector, raise tariffs on energy to almost 51% and not to set up Special Economic Zones are quite unproductive concessions and will keep growth and social mobility on the edge.

While crossing the threshold of eligibility, Pakistan this time around was deep in the woods as it literally had to struggle for raising $2 billion in commercial financing and securing a rollover of more than $16 billion from friendly states. If it had not been the benevolence of China, Saudi Arabia and the UAE, Islamabad would have found itself in the quagmire of debt-servicing and balance of payments dilemma. The new loan package is no more than a timely relief, and will come to establish the competence of structural reforms as they pass through the litmus test of stringent implementation.

Given the lack of political will to tax the affluent classes, including the real estate and farming sector, coupled with no drastic cut in government spending, the funneling of big money too will be consumed in day to day affairs, with little or no improvement in the paradigm of economy. Generating wealth and ensuring promising growth is a must to come out of the prevailing crisis. For that to happen, the sooner we buoy production and make it export-oriented, the better. Attracting investment will be a tough task until political stability sets in and the cost of production comes down to make it an attractive destination.