If beggars could be choosers, no one would choose to go to the International Monetary Fund (IMF) for a bailout package. Pakistan’s local currency is in a state of free-fall against the US dollar after the government agreed to a $6 billion loan with harsh conditions from the Washington-based fund.
The Pakistani rupee on Friday hit a historic low at Rs149.50 in the interbank market and Rs150 in the open market against the greenback.
The rupee’s depreciation of more than five per cent in just two days of the last week is attributed to IMF-dictated market-based exchange rate mechanism and non-intervention of the central bank.
The rupee is also losing its value because of the country’s widening current account deficit, drying up foreign flows, increasing oil imports and repayments to the IMF.
“The rupee devaluation is the effect of the free float of the dollar and the market-based exchange rate mechanism agreed with the IMF,” said Professor Tousif Akhtar, former member of a panel of economists at the Planning Commission of Pakistan.
IMF loan’s serious repercussions
A sliding rupee is also fuelling inflation. The Consumer Price Index in the country increased by 8.8 per cent in April compared to a 9.4 per cent rise in the previous month and 3.7 per cent a year ago, according to the Pakistan Bureau of Statistics. Soaring inflation has weakened the purchasing power of the people.
The high inflation has hit the poor hardest. The middle class struggling to meet the minimum standards of living is forced to cut down their expenditures on health and children’s education. The gap between rich and poor is widening.
The $6 billion loan by the IMF may prove a cash lifeline for the cash-strapped country for the time being but it would have serious repercussions for the country’s economy in the long term. Though a clean chit from the IMF opens doors to inflows from other international financial institutions for a recipient country, the IMF beggar-thy-neighbour policies continue to deepen public frustrations with the government in the country and gradually lead the economy to a stage where it virtually lives on injections from international lenders and donors.
The IMF may not only be blamed for Pakistan’s economic mess; previous governments are mainly responsible for the crisis. Similarly, the Pakistan Tehreek-i-Insaf (PTI) government led by Prime Minister Imran Khan cannot merely put blame on the previous governments for the current mess. In the July 2018 elections, the people voted for change and they had high expectations from PTI leadership.
What to speak of an economic turnaround and out-of-the-box solutions to the economic crisis, the PTI government even could not steer the economy ship to the right direction in the past nine months. It followed the policy of holding the begging bowl of its predecessors. In the nine months of the new government, the rupee has almost lost 21 per cent of its value against the dollar from Rs123 to Rs150.
PTI finance minister Asad Umer was fired because of his poor performance. Ironically, Hafeez Sheikh, who replaced Umer, had been the finance minister in the former government led by then-president Asif Ali Zardari. Under the Zardari administration, the country made entry into an IMF programme with tough conditions that pushed the economy into a state of stagflation. In 2008, the country agreed to an $11.3 billion loan with the IMF to avert a balance of payment crisis. It received $7.6 billion but failed to get the remaining $3.7 billion due to slippages in performance criteria, leading to the suspension of the programme in May 2010.
It was extended in December 2010 for nine months, but disbursements were not resumed owing to the country’s failure to take fiscal measures as demanded by the fund. In 2013, the government led by then-prime minister Nawaz Sharif, availed the $6.6 billion rescue loan from the IMF to repay the old loan.
The tested and tried player, Sheikh is again at play as Khan’s advisor on finance. One can bet whether Sheikh learnt anything from 2008 IMF programme or nothing. That IMF plan caused a significant economic slowdown and the former finance minister (Sheikh) faced a major challenge in managing a slowing economy. The economy requires 7 to 8 per cent growth to lift the country out of poverty and fully absorb the growing labour force.
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By Syed Fazl-e-Haider
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