THE IMF has ‘officially’ expressed what appears to be lack of trust in Pakistan by linking any future loan to the “broadest and deepest political support” for upfront macroeconomic reforms and policy changes. Although the Fund has been playing hard to get ever since Islamabad backed out of its commitment to implement reforms stipulated in the prematurely terminated $11.3bn standby arrangement, it is for the first time that it has publicly made a new loan conditional on Pakistan setting its own house in order. A Fund official told the media on conclusion of the post-programme review that if and when Islamabad applies for a new loan, it will be told to take prior actions for macroeconomic stabilisation. This means the government will not be able to use IMF dollars to boost reserves without fulfilling its commitments. The adjustments Pakistan is required to make before the disbursement of new funds include reorganising the power sector, abolishing untargeted subsidies, restructuring public sector businesses, overhauling the tax regime and administration to boost dwindling tax revenues, reforming the bureaucracy, and reducing the budget deficit.
Implementing these actions requires the government to take tough, politically unpopular decisions. But these will have to be taken sooner or later, with or without an IMF loan, to prevent economic collapse. It is a foregone conclusion that the country needs several billion dollars from the Fund to support its balance-of-payments position as foreign exchange reserves fall below the import cover of one and a half months and the rupee continues to weaken. We can still circumvent the debt trap, though, if our leadership develops a broad consensus on the tough actions needed for sustainable economic recovery as listed by the IMF. This would send a positive message to potential investors and help the country attract fresh funds from both domestic and foreign investment, precluding the dire need for yet another IMF loan — at least after a few years if not in the immediate future.