Emergency loans from financial institutions, not to solve Pakistan’s problems, need to diversify its economic policies


Islamabad [Pakistan]23 September (ANI): Pakistan needs an overhaul of economic policies as the country faces its worst-ever floods accompanied by a huge resource shortfall, despite receiving emergency loans from global financial institutions to rebuild.
Resource gap pressures mount as Pakistan is unable to seek foreign aid or loans due to its struggling economy with slow growth, dual deficits, shrinking foreign exchange and uncontrolled inflation, the Financial Post reported.
Due to poor macroeconomic indicators, the country rating has slipped to non-investment grade. Moody’s, Fitch and S&P Global – all major global rating agencies – downgraded Pakistan’s long-term rating from stable to negative in July, citing the weakening economic situation. These agencies had also highlighted the country’s weaker external position, higher commodity prices, devaluation of the rupee and tighter global market conditions.
Finance Minister Miftah Ismail’s recent disclosure states that “none of the friendly countries are willing to provide financial aid to Pakistan” because it has “an unbalanced economy”.
Recently, Pakistan became aware of the IMF’s Extended Fund Facility (EFF) and the World Bank’s intention to repay two of its $1 billion policy loans.
The problem has in fact prompted the Pak government to impose an unpopular three-rate super tax of Rs 3000/-, Rs 5000/- and Rs 10,000/- to levy a Rs 41 billion tax on shopkeepers and an additional tax of Rs 5 Percent raise by manufacturers do not contribute to exports, reports Financial Post, reports Financial Post.
The IMF’s decision to extend the EFF to the end of June 2023 and to reclassify and top up the EFF to USD 6.5 billion would only provide temporary relief. The 7th and 8th tranches would release approximately US$1.17 billion under the EFF for Pakistan.

Islamabad experiences major disparities between imports and exports. And despite recent measures to ban imports of various items, Pak imports continue to rise.
While policymakers in Islamabad are scrambling to steer the economy after catastrophic floods, funds made available by the IMF to avert an external debt default are also putting great pressure on the economy due to the country’s stringent conditionality, which has caused very fragile growth during COVID -19-period and accumulated unsustainable debt and current account deficits over time, Financial Post reported.
In addition, IMF conditionality includes raising electricity tariffs, levying a levy on oil, mobilizing higher revenues and limiting spending to reduce the budget deficit, maintaining the market-determined exchange rate, and establishing an anti-corruption task force to Bribery to curb government departments.
In addition, Pakistan is unable to boost its exports to overcome its perennial trade deficit. Due to a lack of diversification and value creation, many industries were unable to contribute to the country’s export basket, but continued to import commodities to serve domestic markets, the Financial Post reported.
In order to increase exports, Pakistan needs to focus on its comparative advantage and cooperation with foreign companies that could promote industrial growth through technology transfer and provide capital for industrialization. Relying solely on China hasn’t helped much and wouldn’t work well in the future either.
Pakistan is also under other pressures. The China-Pakistan Economic Corridor (CPEC) Power Purchasing Agreements (PPA) are a contentious issue between Pakistan, China and the IMF, and the key stipulation is to “reduce the circular flow of debt by reducing power generation costs and rebalancing power subsidies “.
Pakistan cannot achieve macroeconomic stability until its energy sector is repaired. The IMF has also flagged China’s abrupt growth slowdown as a major concern as its financial space, a key strategic partner, shrinks, the Financial Post reported. (ANI)

This report is submitted by the ANI news service. TheNewsMill takes no responsibility for this content.


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