INP-WealthPk
Pakistan should capitalise on IMF loan to fix economy
July 19, 2023
Ayesha Saba
The recent short-term loan agreement between Pakistan and the International Monetary Fund (IMF) has injected new life into the country's stock market, led to a rise in the value of local currency, and bolstered foreign exchange reserves. However, experts warn that structural weaknesses, political uncertainty, and the strings attached to the IMF Stand-By Agreement posed serious challenges to the policymakers. Talking to WealthPK, Director General International Islamic University, Islamabad (IIUI), Professor Abdur Rashid pointed out that the financial sector of a country was highly dependent on the appreciation or depreciation of its currency. He said the Pakistan rupee was continuously going downwards and was in the worst condition at present. "In an open economy, when the local currency is depreciated, it directly leads to an increase in trade deficit of that country as imports become costlier.
Pakistan is facing the same situation," he said. Abdur Rashid mentioned that in 2017, the United States had a trade deficit of about $450 billion, the United Kingdom around $100 billion and Canada around $50 billion. "Other countries export more than they import. China is at the forefront as it has a huge manufacturing base and runs a trade surplus of over $160 billion. Japan, South Korea, and Germany also have trade surpluses." He said Pakistan's debt was the worst performing in the emerging market economies during the previous fiscal year, signalling investors' concerns. The IIUI director general said it was expected that the IMF bailout, coupled with bilateral inflows, would help Pakistan at least meet its repayments schedule this fiscal year. He said with the approval of the IMF loan, the country's risk of default on foreign debt obligations had diminished in the short to medium term.
Sajid Amin, deputy executive director and founding head of the Policy Solutions Lab at Sustainable Development Policy Institute (SDPI), told WealthPK that Pakistan's economic crisis, including high inflation, low growth, and declining foreign exchange reserves, required a comprehensive reform agenda that addressed both short-term stabilisation and long-term structural issues. He said though the government managed to secure an IMF loan of $3 billion spanning over nine months, it would have to ensure that funding conditionalities were implemented in letter and spirit, which the Pakistan has always lacked, earning the mistrust of the lender of the last resort. "Considering the prevailing political uncertainty, a period of nine months may not be sufficient for implementing substantial and impactful reforms in Pakistan. To ensure long-term stability and economic progress, it is crucial for Pakistan to start planning beyond this timeframe." Sajid Amin said Pakistan's fundamental problems must be addressed on priority to attain long-term stability.
Credit: INP-WealthPk
