The International Monetary Fund (IMF) has thrown Pakistan’s flailing economy a lifeline through a $6 billion loan that brings with it stringent conditions and regular monitoring.
The Executive Board approved the loan to support the economic reform programme initiated by Prime Minister Imran Khan, the IMF said on Wednesday.
Pakistan will receive $1 billion immediately and the rest will be delivered over a 39 month period based on periodic reviews, according to the IMF.
In return, Islamabad is expected to undertake reform measures ranging from reducing public debt through improved tax collection and eliminating losses in the energy sector to adopting “market-determined exchange rate” that could drive down the Pakistani rupee and rebuilding reserves, the IMF said.
IMF’s First Deputy Managing Director and Acting Chair David Lipton said: “Pakistan is facing significant economic challenges on the back of large fiscal and financial needs and weak and unbalanced growth.”
It is taking steps to remedy this and “the strong financial support to the authorities’ policy efforts by Pakistan’s international partners is essential to meet the large external financing needs in the coming years and allow the program to achieve its objectives”, he added.
The IMF asserted that its loan will help Pakistan get $38 billion from its international partners over the 39-month period of its programme.
Pakistan received a loan of $2.5 billion in February to shore up its foreign exchange reserves. In addition under Beijing’s One Belt One Road and the China-Pakistan Economic Corridor programmes, Pakistan has received billions of dollars in a mix of commercial loans, soft loans and investments.
The IMF and Pakistan were apparently able to overcome US misgivings that the loan could be used to pay off debts to China.
US Secretary of State Mike Pompeo said last year in an interview to CNBC: “There’s no rationale for IMF tax dollars, and associated with that American dollars that are part of the IMF funding, for those to go to bail out Chinese bondholders or China itself.”
A bipartisan group of three US Representatives – Ami Bera, Ted Yoho and George Holding – had earlier this year written to Pompeo and Treasury Secretary Steven Mnuchin opposing the IMF loan and said it should not be used to pay off loans to China.
Khan, who campaigned last year with the promise of a broad anti-program that would include scholarships, improved health care for all, loans for the poor and even free phones for poor women, had opposed taking a loan from the IMF.
But reality hit him when he inherited a weak economy, short on foreign reserves and burdened by loans and forced him to ask for the IMF bailout. Its foreign exchange reserves are only $6.8 billion, capable of covering only less than a month and a half’s worth of imports, according to the IMF, which has projected its economy to grow only by 2.9 percent during fiscal year that just ended.
One of the lines of opposition to IMF loans is that the strict conditions it imposes could lead to belt-tightening and bring misery to the people.
To stave off such criticism, Lipton emphasised the social dimensions built into loan programme.
He said: “Protecting the most vulnerable from the impact of adjustment policies will be an important priority. This will be achieved by a significant increase in resources allocated to key social assistance programs, supporting measures for the economic empowerment of women, and investment in areas where poverty is high.”
Khan’s financial advisor Abdul Hafeez Shaikh, who also heads the finance ministry, tweeted that the loan programme will “support our economic reform programme. Our program supports broad-based growth by reducing imbalances in the economy. Social spending has been strengthened to completely protect vulnerable segments”.