Pakistan Gets a Lifeline from IMF. Analysis By- MOHIT SINGH
Finally IMF (International Monetary Fund) delivers $6 Billion Bailout to Pakistan, Approximately 42,000 Crore Indian Rupees.
So before I start I would like to explain one very simple thing regarding "Bailout". When it comes to Bailout then people generally misinterpret it as "Simply Loan", but this is completely wrong. A loan can be taken by anyone, a person or a country which may be financially stable for further development. But when this receiving of money gets this tag "Bailout" then the meaning itself changes. A "Bailout" is giving financial assistance or loan to a "FAILING STATE". So any Loan given to a failing state is termed as Bailout. So, every bailout can be a loan but every loan is not bailout.
IMF At a Glance: International Monetary Fund is an international organization which is headquartered in Washington D.C which consists of total 189 countries of which our Lovely India is also a part. IMF was established in order to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment, reduce poverty around the world and most important of them all is SUSTAINABLE ECONOMIC GROWTH. Top 5 highest contributors to IMF are USA (17.5%), Japan (6.5%), China (6.4%), Germany (5.6%), France (4.2%)…. India comes at 8th with 2.76% share.
Difference of Perception and Reaction to IMF grant to Pakistan: So if we will see from Indian Perspective then the first thing what may come to our mind is that, this bailout may now benefit Pakistan in pulling Pakistan out of financial crisis, as Pakistan by making use of this amount of money would outsource many developmental projects in order to pay it's debt in the future. But the condition is totally different there in Pakistan. The citizens of Pakistan are very frustrated and reeling under anguish, the cause of their frustration is that Pakistan is going back again to IMF for financial assistance and also the financial assistance or loan from IMF comes with a lot of difficulty because it is loaded with immense number of Terms and Conditions, the other reason that has fuelled anguish among Pakistani Citizens is that they voted Imran Khan because Imran Khan had promised the Aawaam that when their government would come to power then Pakistan would never ever go to IMF for any further Financial Assistance, so here Imran Khan is breaking his promise what he had made to the Citizens of Pakistan.
IMF Managing Director meeting Pak Finance Minister Asad Umar
Happenings and further Process: So recently Pakistan and IMF announced that as per the agreement IMF is going to provide a total financial assistance of $6 Billion to Pakistan's noxious economy for over a period of 3 years in multiple installments. Now, one major thing we need to understand here is that the financial assistance taken from IMF and loan taken from World Bank differ a lot in many aspects. If we solely talk about interest rates then the interest rates implemented by World Bank is much lesser compared to IMF, the interest rates implemented by IMF is very costly and that too if an emaciated economy like Pakistan has to pay this then it becomes more intense, as the recent currency crash in Pakistan has made things more difficult for Pakistan when it comes to repaying loan back to IMF. The other difference is that the loans taken from WORLD BANK are primarily meant for financing developmental projects, in addition there are very less restrictions on loans when taken from World Bank. But if we analyse financial assistance grants from IMF then IMF not only grants financial assistance but it also gives lot of instructions to that country to which it is granting assistance, as IMF main agenda is to fix the economy. For Instance, in the case of INDIA too it happened, as INDIA too had gone to IMF when INDIA was on the verge of collapse. Till 1990 India was a closed economy that means the market of India was basically Socialistic type of Market, where Government controlled everything, the best example is the LICENSE RAJ, and this resulted in BALANCE Of PAYMENT CRISIS in INDIA, to which India went to IMF for financial assistance to which IMF agreed but IMF gave lots of instructions as well which India had to follow, one instruction was IMF ordered India to open her gates for market forces to intervene into the economy, in simple words IMF ordered India to be a mix up of Capitalist economy as well as Socialistic type of Economy. India agreed upon this and then came the LPG reforms (Liberalisation, Privatisation, Globalisation) in India. So, coming back to the point as we know now IMF's financial assistance comes with a lot of restrictions and instructions it can be very difficult for Pakistan to handle this because Pakistan is not an independent economy, rather experts say that the economy of Pakistan is controlled by China and Pakistan Military, and this is 13th IMF bailout in 30 years for Pakistan, and that being said Pakistan already owes the institution $6 billion from past bailouts.
The situation is far more worse in Pakistan than we think as according to reports by "South Asian Nuclear Power in a Debt Trap" the previous bailouts that Pakistan received, in those previous bailouts process Pakistan received bailouts by mortgaging it's Air Ports, Motor Ways, Large chunk of Land, Radio and TV stations, plus only 1% of Pakistan's total population are tax payers which is 20-25 lakh Citizens approx., and the Government of Pakistan collects only 9% of Pakistan's total wealth through taxes. Even countries like Bangladesh, Sri Lanka have taken far lesser financial assistance from IMF.
When Imran Khan came to power then Citizens of Pakistan were thumping their Chest as they assumed Imran Khan to be some kind of reformer, in fact one analyst of Pakistan went onto compare Imran Khan to Bismarck which I too found funny. But because of Imran Khan Pakistan's economy further deteriorated and the growth rate stands at 3% which used to be 6% during Nawaz Sharif Regime. In addition Pakistan's Citizens don't trust USA and IMF thus the anguish and frustration has become more profound in Pakistan.
IMF Instructions to Pakistan: Now as I mentioned earlier that the financial assistance delivered by IMF comes with lots of instructions and restrictions, so the same will happen in Pakistan. Now the first development what IMF has ordered Pakistan to display is to cut down it's budget deficit to 0.6% of total Pakistan's GDP by reducing unnecessary public spending. Further to meet this tough target set by IMF Pakistan Government has promised to remove tax concessions worth 350 billion Pakistani Rupees or 1% of Pakistan's GDP. Imran khan has openly declared to the citizens of Pakistan to bear with rising inflation and removal of tax concessions given to them earlier.
But the most striking feature about all this development is that IMF has pledged to give Central Bank, State Bank of Pakistan more autonomy in fighting against inflation and the same method was adopted by IMF when India was tackling against Balance of Payment Crisis. In simple words IMF has promised that Pakistan's market will witness more liberalization as it will allow market forces to dictate the Pakistani rupee's exchange, also it has ordered Pakistan to devalue it's currency.
So the coming next three years is very tough and crucial for Pakistan and out of this India is expecting that Pakistan will finally contribute towards the development of whole South Asia in addition Pakistan will eradicate terrorism which is developing on the land of Pakistan as terrorism is a big hurdle in the way of Pakistan to being a healthy economy.
But all this seems to be so goody goody, but it's not that easy as we know that Pakistan Government doesn't play any role in the administration of Pakistan rather it is the Pakistan's Military which holds the reigns of Pakistan's administration. So the biggest challenge for Pakistan Government is to follow IMF instructions and to tackle the dominance of Pakistani Army simultaneously.
So before I start I would like to explain one very simple thing regarding "Bailout". When it comes to Bailout then people generally misinterpret it as "Simply Loan", but this is completely wrong. A loan can be taken by anyone, a person or a country which may be financially stable for further development. But when this receiving of money gets this tag "Bailout" then the meaning itself changes. A "Bailout" is giving financial assistance or loan to a "FAILING STATE". So any Loan given to a failing state is termed as Bailout. So, every bailout can be a loan but every loan is not bailout.
IMF At a Glance: International Monetary Fund is an international organization which is headquartered in Washington D.C which consists of total 189 countries of which our Lovely India is also a part. IMF was established in order to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment, reduce poverty around the world and most important of them all is SUSTAINABLE ECONOMIC GROWTH. Top 5 highest contributors to IMF are USA (17.5%), Japan (6.5%), China (6.4%), Germany (5.6%), France (4.2%)…. India comes at 8th with 2.76% share.
Difference of Perception and Reaction to IMF grant to Pakistan: So if we will see from Indian Perspective then the first thing what may come to our mind is that, this bailout may now benefit Pakistan in pulling Pakistan out of financial crisis, as Pakistan by making use of this amount of money would outsource many developmental projects in order to pay it's debt in the future. But the condition is totally different there in Pakistan. The citizens of Pakistan are very frustrated and reeling under anguish, the cause of their frustration is that Pakistan is going back again to IMF for financial assistance and also the financial assistance or loan from IMF comes with a lot of difficulty because it is loaded with immense number of Terms and Conditions, the other reason that has fuelled anguish among Pakistani Citizens is that they voted Imran Khan because Imran Khan had promised the Aawaam that when their government would come to power then Pakistan would never ever go to IMF for any further Financial Assistance, so here Imran Khan is breaking his promise what he had made to the Citizens of Pakistan.
Happenings and further Process: So recently Pakistan and IMF announced that as per the agreement IMF is going to provide a total financial assistance of $6 Billion to Pakistan's noxious economy for over a period of 3 years in multiple installments. Now, one major thing we need to understand here is that the financial assistance taken from IMF and loan taken from World Bank differ a lot in many aspects. If we solely talk about interest rates then the interest rates implemented by World Bank is much lesser compared to IMF, the interest rates implemented by IMF is very costly and that too if an emaciated economy like Pakistan has to pay this then it becomes more intense, as the recent currency crash in Pakistan has made things more difficult for Pakistan when it comes to repaying loan back to IMF. The other difference is that the loans taken from WORLD BANK are primarily meant for financing developmental projects, in addition there are very less restrictions on loans when taken from World Bank. But if we analyse financial assistance grants from IMF then IMF not only grants financial assistance but it also gives lot of instructions to that country to which it is granting assistance, as IMF main agenda is to fix the economy. For Instance, in the case of INDIA too it happened, as INDIA too had gone to IMF when INDIA was on the verge of collapse. Till 1990 India was a closed economy that means the market of India was basically Socialistic type of Market, where Government controlled everything, the best example is the LICENSE RAJ, and this resulted in BALANCE Of PAYMENT CRISIS in INDIA, to which India went to IMF for financial assistance to which IMF agreed but IMF gave lots of instructions as well which India had to follow, one instruction was IMF ordered India to open her gates for market forces to intervene into the economy, in simple words IMF ordered India to be a mix up of Capitalist economy as well as Socialistic type of Economy. India agreed upon this and then came the LPG reforms (Liberalisation, Privatisation, Globalisation) in India. So, coming back to the point as we know now IMF's financial assistance comes with a lot of restrictions and instructions it can be very difficult for Pakistan to handle this because Pakistan is not an independent economy, rather experts say that the economy of Pakistan is controlled by China and Pakistan Military, and this is 13th IMF bailout in 30 years for Pakistan, and that being said Pakistan already owes the institution $6 billion from past bailouts.
The situation is far more worse in Pakistan than we think as according to reports by "South Asian Nuclear Power in a Debt Trap" the previous bailouts that Pakistan received, in those previous bailouts process Pakistan received bailouts by mortgaging it's Air Ports, Motor Ways, Large chunk of Land, Radio and TV stations, plus only 1% of Pakistan's total population are tax payers which is 20-25 lakh Citizens approx., and the Government of Pakistan collects only 9% of Pakistan's total wealth through taxes. Even countries like Bangladesh, Sri Lanka have taken far lesser financial assistance from IMF.
When Imran Khan came to power then Citizens of Pakistan were thumping their Chest as they assumed Imran Khan to be some kind of reformer, in fact one analyst of Pakistan went onto compare Imran Khan to Bismarck which I too found funny. But because of Imran Khan Pakistan's economy further deteriorated and the growth rate stands at 3% which used to be 6% during Nawaz Sharif Regime. In addition Pakistan's Citizens don't trust USA and IMF thus the anguish and frustration has become more profound in Pakistan.
IMF Instructions to Pakistan: Now as I mentioned earlier that the financial assistance delivered by IMF comes with lots of instructions and restrictions, so the same will happen in Pakistan. Now the first development what IMF has ordered Pakistan to display is to cut down it's budget deficit to 0.6% of total Pakistan's GDP by reducing unnecessary public spending. Further to meet this tough target set by IMF Pakistan Government has promised to remove tax concessions worth 350 billion Pakistani Rupees or 1% of Pakistan's GDP. Imran khan has openly declared to the citizens of Pakistan to bear with rising inflation and removal of tax concessions given to them earlier.
But the most striking feature about all this development is that IMF has pledged to give Central Bank, State Bank of Pakistan more autonomy in fighting against inflation and the same method was adopted by IMF when India was tackling against Balance of Payment Crisis. In simple words IMF has promised that Pakistan's market will witness more liberalization as it will allow market forces to dictate the Pakistani rupee's exchange, also it has ordered Pakistan to devalue it's currency.
So the coming next three years is very tough and crucial for Pakistan and out of this India is expecting that Pakistan will finally contribute towards the development of whole South Asia in addition Pakistan will eradicate terrorism which is developing on the land of Pakistan as terrorism is a big hurdle in the way of Pakistan to being a healthy economy.
But all this seems to be so goody goody, but it's not that easy as we know that Pakistan Government doesn't play any role in the administration of Pakistan rather it is the Pakistan's Military which holds the reigns of Pakistan's administration. So the biggest challenge for Pakistan Government is to follow IMF instructions and to tackle the dominance of Pakistani Army simultaneously.
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