14:48 | 30/07/2018 Global Economy
As the economy teeters due to depleting foreign exchange reserves, rising twin and current account deficits, Pakistan is planning to seek a US$10-12 billion loan from the International Monetary Fund (IMF), a government advisor said.
While talking to the Financial Times, one government advisor told “We are in a rough area and need help. I can’t imagine we could do that without the IMF’s support.”
The advisor went onto state the country would require a loan in the range of US$10 to US$12 billion, over double the US$5.3 billion amount obtained from the IMF during the course of the previous bailout in 2013.
This will be the largest ever bailout Pakistan has ever obtained from the IMF if the agreement gets reached.
However, analysts cautioned Imran Khan would find it hard to deliver on his promises of spending public money on giving access to health-care for all, expanding the social safety net due to the country’s economic situation.
The country obtained over US$5 billion of loans from China during last FY18 and a 20 depreciation of the rupee against the dollar to keep it afloat.
According to Western analysts, the local currency is still overvalued and needs to further depreciate by 10 percent.
Pakistan’s forex reserves have eroded drastically in recent months, as rising oil prices have jacked up the cost of imports, while exports remain sluggish.
Analysts believe a return to the IMF is unavoidable and will have damaging repercussions on short-term economic growth and Imran Khan’s political reputation.
Moreover, analyst say in demand for the IMF bailout, the Washington-based lender agency will extract major concessions from the upcoming government including increasing power tariffs, reducing subsidies for the agriculture sector and divesting state-owned enterprises (SOEs).
According to IMF estimates, Pakistan’s fiscal deficit could touch 7 percent compared to a target of 4.1 percent which means it could demand deep cuts in planned public spending.