As a result of mounting unemployment, inflation, and poverty, Pakistan is going through one of its worst economic crises in history. Jeopardising the rights of millions of people to food, health care, and a living wage. Due to the government’s inability to satisfy the IMF’s conditions for the next tranche of the country’s bailout package, Prime Minister Shahbaz Sharif issued a “difficult time” warning.IMF representatives and Pakistan’s Finance Minister Ishaq Dar started negotiations on the nation’s bailout in Islamabad’s capital. The country’s foreign reserves have seeped at a dangerously low $3 billion.
History of Pakistan’s Economy
Nawaz Sharif, the country’s former prime minister, and the IMF reached an agreement on the terms of a $6.6 billion loan in 2013 that would be repaid over 36 months. Nevertheless, he needed help to privatise state-owned companies in the red or broaden the tax base. The current bailout programme was introduced by the previous prime minister, Imran Khan, in 2019, the year before he was removed from power by a parliament vote. This loan programme has also changed from its intended course at least three times over the previous two years, with each new finance minister wanting to renegotiate.
Ishaq Dar was appointed Pakistan’s finance minister on 28 September 2022. He had expected an IMF team to arrive in October to reopen the lines of communication, but it wasn’t until late January. Dar thought an IMF team would come in October to resume negotiations, but it wasn’t until late January that it did, a lengthy delay he considered “strange.” Because the IMF refused to move forward in negotiations, the bailout has been in limbo for months.
Impact of New Bailout Conditions by IMF
A raise in the power rate, the reinstatement of unrestricted imports, and an increase in the petroleum development fee on diesel are among the conditions the lender reportedly listed for restarting the bailout. As a part of its $6 billion bailout plan, Pakistan requests an essential instalment from the fund of $1.1 billion to avoid defaulting. Shehbaz Sharif, the prime minister of Pakistan, said the IMF bailout terms are “beyond our wildest dreams.” According to Sharif, the IMF made the finance minister’s job “extremely difficult” during the negotiations. Our current economic challenges are unfathomable,
Current Economic Crisis Scenario in Pak
Pakistan is struggling with the tremendous economic crisis as well as the effects of the devastation caused by the floods last summer, which may have cost the nation $40 billion in damages. The government needs help complying with some of the IMF’s requirements, such as hiking the cost of gas and electricity and adopting additional taxes.
What happens if Pakistan defaults?
If Pakistan were to default on its debt, the nation would be unable to pay back commercial loans. In the most straightforward words, a default for a nation like Pakistan that has a substantial exposure to commercial loans involves defaulting on commercial debt, the document stated. Commercial loans are the main factor determining a country’s susceptibility to default since bilateral debt may be refinanced, but multilateral debt often has long-term maturity cycles. Pakistan is now negotiating with the IMF to deliver a further $1.1 billion tranche as part of a $7 billion rescue plan.