Pakistan’s misery continues as IMF goes micro, links loan with deep cleansing of economy

The Shehbaz Sharif government, which has not managed to reach an agreement with the International Monetary Fund (IMF) yet for the resumption of the $6.5 billion loan programme, will be embarrassed as the multilateral lender continues to shift goalposts and riders. The IMF has now indicated that it will work with Pakistan on the preparation of the country’s budget —an exercise which was not a part of the loan programme. The change in stance has miffed the country’s policymakers.

This is also causing embarrassment for the government, especially with approaching general elections. Local newspaper Dawn noted that Islamabad and the IMF have had differences over the gap. “It was also not immediately clear why the lender wanted to work on the technical preparation of the budget, which is not covered by the programme,” the news organisation said.

Pakistan, one of the top debtors of the IMF, has been in talks with the multilateral agency for several months now. Even as the two are yet to reach an agreement, Pakistan’s inflation rate for April surged to 36.4 per cent outpacing Sri Lanka’s 35.3 per cent. However, the stringent conditions set by the IMF would only make things worse in the coming months. The government has already indicated that prices will increase further.

In March, food inflation in Pakistan touched 47.15 per cent compared with the same month in 2022.

According to the country’s public think tank– Pakistan Institute of Development Economics (PIDE), the IMF assistance is unlikely to help Islamabad steer out of the crisis.

The general prescription of the IMF of levying higher taxes and increasing interest rates is a flawed one, many experts have opined.

“The general prescription that IMF thrashes out as part of its financial assistance programme is often not the correct way to look at things. Each country is unique and a one size fits all solution can be dangerous,” an analyst told India Narrative.

Pakistan has sought IMF assistance more than 20 times. But clearly, the economic situation of the South Asian nation has not improved. For Pakistan, the problem has multiplied with Islamabad seeing the IMF loan programme as the “end solution.”

Earlier, Pakistan Prime Minister Sharif termed the IMF riders for continuation of the financial assistance programme as “beyond imagination”.

“I will not go into the details but will only say that our economic challenge is unimaginable. The conditions we will have to agree to with the IMF are beyond imagination. But we will have to agree with the conditions,” Sharif said in televised comments.

Bottomline—Pakistan cannot consider the IMF loan to be manna from heaven. A country seeks IMF assistance only when the economic crisis goes beyond immediate repair. “The economic crisis therefore needs to be fixed, clinching the IMF loan deal is just a breather and not the solution, it highlights the problems..and the problems need resolution…it is the other way round in Pakistan,” the analyst said.

Also read: IMF loan not enough to help Pakistan’s economy, says country’s top public think tank