Cash strapped Pakistan’s bid for $1 bn IMF loan may face hurdles

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Pakistan, with an increased debt-levels, is eyeing another $1 billion loan from the International Monetary Fund (IMF). Negotiations for the deal will start from October 4. At a time when Pakistan’s relations with the US and the West have deteriorated considerably especially in the wake of its role in the Taliban-led Afghanistan, the country is hoping to get <a href="https://www.thenews.com.pk/print/894855-pakistan-eyes-debt-for-nature-swap-deal-worth-1b-till-2023">a debt for nature swap deal</a>.</p>
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Debt for nature swap essentially means that Pakistan would be exempt from repaying the amount but would have to commit to invest the money in conservation of environment and biodiversity.</p>
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<strong>Also read: <a href="https://www.indianarrative.com/world-news/us-vents-fury-over-composition-of-afghan-government-during-talks-with-pakistan-foreign-minister-116907.html">US vents fury over composition of Afghan government during talks with Pakistan foreign minister</a></strong></p>
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IMF, meanwhile, has appointed a new country head for Pakistan, “ahead of high-stake talks for the release of $1 billion loan tranche,” <a href="https://tribune.com.pk/story/2321312/imf-talks-on-oct-4-for-release-of-1b-tranche">the Express Tribune</a> said. “The discussions will take place amid deterioration in Pakistan’s relations with the West and threats to a fragile external sector stability of the country’s economy,” the news organisation said.</p>
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<strong>IMF to review Pakistan’ economy under Article IV</strong></p>
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The IMF is also set to review Pakistan’s economic contours under Article IV of the multilateral agency’s articles of agreement. As part of the review process, the IMF holds bilateral discussions with members on economic and financial policies and data. Usually this is an annual affair</p>
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Why is this important? Based on this report, the IMF decides the course of lending pattern. The report also acts as a credible platform of information for other international lenders.</p>
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In Pakistan’s last Article-IV review that took place in 2017, the country’s extensive economic and commercial ties with China had been noted.</p>
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<strong>Pakistan’s debt situation</strong></p>
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According to <a href="https://www.thenews.com.pk/print/894855-pakistan-eyes-debt-for-nature-swap-deal-worth-1b-till-2023">The News International</a>, Pakistan owes nearly $11.54 billion to the lending countries of the Paris Club. This includes $1.42 billion to Germany, $175 million to Italy, $5 million to the UK besides $403 million to Canada.</p>
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Interestingly, the Imran Khan government, which launched the mega Kamyab Pakistan Programme with much fanfare in August, aimed at providing interest-free loans for about seven million families has already had to cut its monthly budget for this particular scheme within a month.</p>
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<strong>Also read: <a href="https://www.indianarrative.com/economy-news/as-pakistan-remains-focused-on-afghanistan-its-people-continue-to-fret-over-high-food-prices-116305.html">As Pakistan remains focused on Afghanistan, its people continue to fret over high food prices</a></strong></p>
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The most critical problem for Islamabad will have to do “a lot of explaining to the IMF” especially after its big bonanza Budget for the new financial year. Development expenditure has been increased by more than 40 per cent.</p>
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While this would keep Khan’s domestic audience happy, it would put pressure on the country’s fiscal situation. “This will be monitored by the IMF and the Pakistan government may not find it easy to explain to the IMF,” an analyst told India Narrative.</p>
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Interestingly, Pakistan’s Finance Minister Shaukat Tarin blamed the IMF for the steady rise in inflation.</p>
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Last month, Pakistan received $2.75 billion from the IMF under its Special Drawing Rights (SDR) programme which is meant to support low-income countries that have been hit by Covid 19 pandemic. The fund is part of a $650 billion global programme.</p>
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Simply put, Pakistan has been borrowing more to repay its outstanding debt.</p>
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“The spike in debt accumulation over time signifies the failure of successive governments to increase their tax revenue for financing their budgets and push exports to earn enough dollars to pay for the rising import bill, which has resulted in the emergence of large current account deficits year after year,” <a href="https://www.dawn.com/news/1632088">Dawn</a> in an article said. </p>