Achi news desk-
Monitoring desk
ISLAMABAD: The International Monetary Fund (IMF) on Monday approved the final disbursement of $1.1 billion in loan tranches, marking the successful end of the second bailout package in eight years, but it has exacted a heavy toll in the form of unsustainable inflation and a slowing economy.
The International Monetary Fund’s board of directors approved the completion of the second review of the $3 billion standby arrangement, the Treasury Department confirmed. It also paved the way for the release of the final $1.1 billion loan tranche. The IMF board also supported Pakistan’s intention to receive an additional bailout package to ensure “permanence in economic stabilization and deepening of structural reforms.”
The global lender confirmed the completion of the second review of the settlement hours after Prime Minister Shahbaz Sharif said the country’s debt trap had become a ‘death trap’, calling it the biggest challenge for his government. He said this while speaking at the closing session of the World Economic Forum (WEF) in Riyadh, Saudi Arabia.
“We have a serious problem of inflation ahead of us. Then we have a debt trap, I prefer to call it a death trap, which has destroyed our economy,” said Shahbaz. The Prime Minister also met with International Monetary Fund Managing Director Kristalina Georgieva in Saudi Arabia on Sunday to discuss the next bailout plan.
Deviating from its transparency policy, the International Monetary Fund did not list Pakistan in the April 29 calendar published on its website.
Prime Minister Shahbaz, National Bank of Pakistan Governor Jameel Ahmed and Finance Secretary Imdad Ullah Busal played key roles in securing the first deal in June 2023 and then pushing it towards the finish line.
In July of last year, Pakistan signed a nine-month plan of 3 billion dollars, which stabilized the economy and brought the current account deficit under control. However,
The budget deficit remains out of control and is about to end at around 7.4% of GDP according to the International Monetary Fund’s own estimates.
This is the second rescue package that the country has completed in the last eight years. Last time, it successfully implemented the expanded fund facility in the amount of 6 billion dollars between 2013-2016. But it again had to seek another bailout in 2019, which remained unsuccessful.
Former Prime Minister Shahid Khaqan Abbasi said on Sunday that seeking another IMF program was akin to “admitting failure.”
The SBA also led to a significant increase in the burden on the people in the form of higher taxes on the wage earners and excessive increases in the prices of gasoline, gas, and electricity. The central bank has lost its autonomy to the International Monetary Fund and remains unable to lower interest rates despite a significant reduction in current and future inflation forecasts.
The time has now come for the International Monetary Fund to allow room for some economic growth, as the poverty rate is high at 40% with an additional 10 million Pakistanis on the brink of deteriorating into the poverty trap.
During the staff-level discussions, Pakistan assured the IMF that it would “continue the timely implementation of electricity and gas tariff adjustments to maintain average tariffs in line with cost recovery while protecting the vulnerable through the existing progressive tariff structures, thereby preventing any net reverse debt accumulation in FY24”.
Since then there has been a consistent significant increase in electricity prices in the form of monthly fuel cost adjustments. The government also raised gas prices twice as part of the nine-month SBA arrangement.
