This is how IMF will play its part to reduce the trade deficit of Pakistan.
- Extended Fund Facility (EFF) will improve public finances and reduce public debt through tax policy.
- In order to borrow from the IMF, Pakistan should agree to surrender part of its sovereignty to the fund during the period of loan program.
- The IMF program is not likely to provide a credible solution to Pakistan’s economic problems but the government’s priority is to ward off the immediate crisis.
The EFF will improve public finances and reduce public debt through tax policy and administrative measures.
IMF will provide $6 billion to Pakistan under a 39-month Extended Fund Facility (EFF).
The EFF will improve public finances and reduce public debt through tax policy and administrative measures. It will ensure cost recovery in the energy sector and state-owned enterprises (SOEs). It will also promote infrastructure and human capital development.
In recent years, every elected government began its tenure by facing the question of whether to seek IMF assistance and Pakistan has been seeking assistance from the IMF fairly regularly.
Complete details of Pakistan’s current agreement with the IMF are not yet known but according to the fund,
“The IMF program aims to support the authorities’ strategy for stronger and more balanced growth by improving the business environment, reducing domestic and external imbalances, increasing transparency, strengthening institutions, and protecting social spending.”
The IMF program provides credit to the economies facing a balance of payments (BOP) crisis. A country is provided a specified amount during a given period under the Extended Fund Facility, usually in tranches, subject to the borrower’s compliance with performance criteria and other conditions embodied in the agreement.
Conditions of the IMF program demand a reduction in the fiscal deficit, flexible exchange rate, depreciation of the domestic currency, liberalization of trade and investment regimes, privatization of state-owned enterprises, tightening of monetary policy and overall deregulation of the economy.
Thus, IMF programs have both political and economic implications. While accepting the IMF assistance, the borrowing country agrees to surrender part of its sovereignty to the fund during the period of loan program.
IMF monitors the country’s fiscal, monetary and exchange rate policies with a view to ensuring that the agreed performance criteria are met. The IMF exercises a lot of influence on the economic decision-making of the borrowing country.
IMF is a bailout and not a development or pro-poor package. The purpose is to help Pakistan service its debt, make payments for imports, build up its reserves and development of social-sector.
The assistance from the IMF will save the country from default on debt repayment and make it possible to pay for imports. The reserves buildup from the IMF assistance will increase Pakistan’s credit rating and convey a positive signal to the domestic foreign exchange market.
The IMF program is not likely to provide a credible solution to Pakistan’s economic problems. However, the government’s priority is to ward off the immediate crisis.