IMF officials are in Pakistan today to finalise the details of a bailout program. With budget and trade deficits in
IMF officials are in Pakistan today to finalise the details of a bailout program.
With budget and trade deficits in excess of 5%, Pakistan’s economy is in crisis. Inflation currently sits at some 9.4%—the highest rate in five years. Meanwhile, the Pakistani rupee has depreciated by 35% over the past 18 months, essentially depleting foreign currency reserves.
An IMF package, expected to be worth some $8 billion, will be difficult to swallow for Prime Minister Imran Khan. For one, campaign promises such as creating an “Islamic welfare state” will almost certainly be broken by a bailout, as the IMF will expect fiscal belt-tightening in return for assistance. Islamabad will be expected to lower its spending, improve tax collection, privatise state-owned enterprises and float its currency—likely devaluing the rupee further in the short-term.
Such reforms will not help Mr Khan’s government, which is facing public anger over rising food and electricity prices. To avoid further political fallout, Islamabad may drag its feet over reforms, which could risk fulfillment of the entire $8 billion loan. Avoiding reforms may help Khan’s popularity in the short-term, but it will mean Pakistan will likely be seeking another bailout over the medium-term.
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