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The prime minister has expressed satisfaction over the economic stabilisation in the country despite the ongoing coronavirus pandemic and said the benefit of the improvement in the economy must reach the common man.
For the past few months, we have been hearing that the economy is heading in the right direction. The current account is in surplus for four consecutive months, liquid foreign reserves have increased over $20 billion and foreign remittances have risen. The rupee has appreciated against the dollar and is trading around Rs158. The government credits this to a market-driven exchange rate and rising exports.
This would be satisfactory for the prime minister’s economic team. Pakistan has also secured debt relief from G20 countries till mid-2021. However, things could change as the government has decided to return to the IMF programme. The talks with the global financial institution to restart the $6 billion loan programme have stalled as the prime minister has reportedly refused to introduce unpopular policy measures.
The IMF wants to raise electricity tariffs, higher tax collection and an increase in the policy rate. The interest rate was lowered to 7% percent in June from 13.25% earlier this year to ease businesses during the pandemic. The State Bank is set to announce a new monetary policy and could increase the interest rate as per IMF demands.
The economy has not yet recovered and Asian Development Bank has projected GDP to contract 0.04% this year before expanding by 2% next year. The central bank has projected a modest growth rate between 1.5-2%. The construction sector, large-scale manufacturing (LSM) and mobile phone purchasing have witnessed significant growth due to the prudent policies of the government.
Pakistan needs to return to the IMF and meet its debt repayments which will materialise next year after the debt relief ends. The government is seeking funds from other global institutions such as the World Bank and is also seeking to issue a $1bn Eurobond. The situation is critical as Pakistan’s external debts and liabilities have increased from $95bn in 2018 to almost $113bn in 2020.
While the government has hailed the improved economic situation, it has not looked at the debt trap ahead which risks national and political security. Pakistan cannot afford unpopular measures due to the ongoing political scenario and opposition’s protests. These measures are always tough but the government will have no choice but to head back to the IMF once again.
