Opinion
Mint Quick Edit | Pakistan's IMF bailout No. 24 and loan addiction
Summary
- The International Monetary Fund has approved an “extended fund facility” worth $7 billion for Pakistan, its 24th bailout since 1958. It must raise taxes and tighten its fiscal deficit. It’s politically tough, but offers its economy an escape path from the mass misery of inflation and unemployment.
Can Pakistan break its IMF loan addiction? On Wednesday, the board of the International Monetary Fund (IMF) approved an “extended fund facility" worth $7 billion for the country. This would be its 24th bailout since 1958. The previous one was last year, when it got a $3 billion package from IMF.
It’s reckoned to have helped haul its economy out of stagnation to record 2.4% growth in the year till end-June. Annual inflation had hit almost 40% last summer, but has fallen to single digits since. The latest loan also has strings attached, with Islamabad’s policies under the multilateral lender’s close watch.
Also read: IMF doubts cash-strapped Pakistan’s repayment capacity as support team arrives in Islamabad
To get its gaping fiscal gap into a zone consistent with macro stability, Pakistan’s tax collections will need to rise by 3% of GDP over the next three years. Its challenge is to cast a wider net and get farmers paying income tax, even as it raises domestic energy charges. Such reforms are politically fraught.
But then, what affects the broadest base is what counts most. Mass misery is usually a function of two big variables: inflation and joblessness. Failure on these cannot be fixed without fiscal correction as a basic condition. De-addiction seems far off.
