Prime Minister Imran Khan met with the IMF chief, Catherine Legarde, on Sunday to discuss the bailout program, alongside the World Government Summit, which took place in Dubai.
The discussions were based around the conditions attached to the provision of economic benefits of the IMF bailout program. Legarde stated that, “we discussed recent economic developments and prospects for Pakistan in the context of ongoing discussions toward an IMF-supported program”, also stating that the key for economic stability in Pakistan could be achieved through “decisive policies and a strong package of economic reforms”. A press release issued by the IMF later stated that the meeting was “good and constructive”.
The ministry of finance also noted that Legarde recognized the relevant steps taken by the government in bringing economic stability. Dawn reported that, there may be a follow up meeting between Finance Minister Asad Umar and the technical staff, later next week.
A final agreement regarding the bailout program could be in place by as early as April and implementation by June and policy implications will be centered on next year’s budget as reported by a senior government official.
A final statement came from Foreign Minister Shah Mehmood Qureshi in which he expressed the governments concern for proceeding with the IMF bailout program as long as it did not place a heavy burden on the common man.
The real issue
At the end of the last fiscal year, it was reported that Pakistan suffered the worst current account deficit in the country’s history, with a sum of $ 17.994 billion, which amounted to approximately 5.4% of the annual GDP.
The reason behind the exponential growth of the current account deficit was due to the fact that there were immense imports coupled with very low export revenues. This could be due to the uncompetitive nature as well as lack of quality of domestic producers and products, respectively.
The issue therefore, comes down to this; in a period of intense expenditures, which may not fall in the short-term, a bailout package would add a heavier burden on the economy as the government will be liable to pay back the amount to the IMF in the next three to four years. The current value for the bailout program is roughly $6 billion, for which the accord could be signed by April.
Another factor that has to be taken into consideration is the “Primary Balance”, which is defined by the Organization for Economic Co-operation and Development (OECD) as government net borrowing or net lending, however, this does take into consideration interest payments on government liabilities. On this note, the Pakistan primary balance will also suffer due to the loan.
Finance Minister Asad Umar, however, has expressed his views and said that there is no panic over the IMF bailout package.
Therefore, taking things into consideration, the public has to trust that the policy makers have a solution and know how to handle the current period of economic inefficiency.