IMF bailout make or break for economy

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Aisha Safdar
If we look back the due to catastrophic policies Pakistan is confronting with economic crisis. To overcome the crisis governments borrow loans as a result future generations are indebted today. The history reveals that instead of adopting long term effective solutions to overcome economic problems governments knocks the door of International Monetary Fund (IMF). The countdown starts and the clock start ticking with the mortgage. Since joining of IMF Pakistan has borrowed 22 times and availed 13th structural adjustment programs of IMF.
It’s the dismay story that starts with “begging bowl” by lending loan and the continued in various episodes of extremely tough and unpalatable restrictions. The whole program is about Do or Die situation. Government of Pakistan made three-year, $6 billion bailout agreement with the International Monetary Fund to support the economy. The problem is IMF has imposed strict conditions like increasing tax collection and termination of utility subsidies. These conditions seem good but in reality they are worsening the public condition in country and turning to break the Pakistan economy.
Now the problem is if Pakistan is unable to pay back the loan what will happen. The simple procedure of availing IMF the bailout packages is that when IMF lends the money, country has to pay back the loan in installments with the interest on it. Also the country must implement the restrictions imposed by the IMF to achieve the goals. If country fails to pay the principal amount back to the IMF, or stops any other funds from reaching the country that cannot repay then in start some grace period (say six months) is given with penalties and arrears and after the grace period the country is declared defaulted.
The current IMF program was to shrink the budget deficit by meeting tax collection targets. Whereas in countries like Pakistan collecting high tax revenue seems very difficult because of various reasons like high tax evasion, political reasons, poor tax collection system etc. To meet the high tax revenue targets government would go for indirect taxes and raising utility tariffs, which would direct burden on general public. Nowadays Pakistan is going through hard time and crisis situation. If the situation didn’t change and got worsen then what will happen.
Followings are some threats to face by Pakistan. IMF will stop lending and will not give any more money because they feel risk for repayment of loan. In future if any loan is sanctioned it will be charged highly on strict conditions because they know very well that country is not in position to bargain and they can impose any restriction. Also the currency will be depreciated. The currency devaluation will also increase the cost of raw materials which Pakistan imports for its export output. That will increase the cost of production that will lead to inflation. Other countries and sources also refuse to help (sanctioning loans, trade etc.) and block the aid as well. More sanctions will be imposed on country because there is huge uncertainty and risk. All assets of country will be seized and if possible will be sold to recover money.
The big institutions of government will be privatized to get money that will lead to unemployment in the country. Investors will take their investments back from market. Inflation in the country will increase that will damage the public causing rebellions and scarcity worsens the situation further. Country will become politically unstable. So the high unemployment and high inflation will worsen the economic situation.
As a result of ineffective policies Pakistan is facing a challenging economic environment, with low growth, high inflation, and high debt. There is massive tax evasion in Pakistan and very few people pay income taxes and the IMF wants a rapid increase in tax. IMF also wants huge reduction in government spending and to cut all the gas and electricity subsidies. All of these steps make the situation worsen and sharp fell of economic condition. The currency is devaluing day by day. Inflation is on peak making people hand to mouth as a result crime rate is increasing in country and unemployment increasing day by day. Wholly people are suffering more and more. That is true if we say the IMF program is “Breaking instead of Making”. The IMF’s agenda is not to strengthen global economies because if it does that, then the Fund itself will be out of business. In fact IMF does not want to strengthen global economies because if it does that, then the Fund itself will be out of business.

The writer can be contacted at safdar.aisha@yahoo.com.