Pakistan Turns to IMF Again, Facing Economic Downslide and a Battered Rupee

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The Pakistani Rupee continues its disastrous downward slide for the last week hitting Rs269.63 for US dollar on Monday, January 30, 2023. Pakistan’s foreign exchange reserves are also at a precarious $3.6 billion.

In this context one hopes that markets stabilize now that an IMF mission will be in Pakistan this week to discuss the resumption of the stalled bailout package. However, it is important to remember that this mission is coming “to conclude the discussions on the pending review of the programme after three months and only after the State Bank lifted the administrative restrictions on the exchange rate to let the rupee discover its market value against the dollar shows that the government is unlikely to win any significant relaxations from it.”

While the current loan package may take care of Pakistan’s immediate balance-of-payments needs it will not be sufficient to cope with a similar payments crisis during the next fiscal year and beyond.

Most experts therefore believe that the government needs to increase the size of IMF funding and the programme, and extend its duration. “There is a kind of ‘national consensus’ on the need for IMF dollars for stabilizing the economy and boosting foreign currency reserves. In the last three months, even friendly countries have made it increasingly clear that they are ready to help us only if we follow the IMF path. With former PM Imran Khan also having lent his support to a deal with the Fund, the government doesn’t have to fret about opposition to such a plan.”

However, as an editorial in Dawn points out, while the IMF is no panacea yet, “the programme can at best provide space for executing deep structural reforms needed to correct course and put the teetering economy on a sustainable growth path.”

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Author: Nasir Saeed