Serious Financial Crisis

Due to America’s help, Pakistan gets IMF loan to survive in future
"The experts say that US president, Joe Biden is making efforts to keep Pakistan on his side to counter China in Asia."
"The experts say that US president, Joe Biden is making efforts to keep Pakistan on his side to counter China in Asia."Flickr [Creative Commons]

Even as cash strapped Pakistan got a last-minute bailout package of USD 6 billion from international monetary fund (IMF), especially when China has refused to come to its rescue owing to pending debt liabilities running several billions of USD, an appeal from Federal Minister for Planning, Ahsan Iqbal to all Pakistanis to cut consumption of tea by 1-2 cups daily has infuriated the people, but it had become obligatory to save economy from collapsing and Pakistan consumed tea worth Rs 8,388 crore (USD 400 million) in the fiscal year 2021-22.

IMF imposes preconditions

While helping bankrupt and economically depressed Pakistan, IMF has forced it to accept yet another retreat hence Shehbaz Sharif government had to agree to impose 1 per cent poverty tax on firms earning Rs 15 crore, 2 per cent on those earning Rs 20 crore, 3 per cent on over Rs 25 crore, and 4 per cent on Rs 30 crore and above.

In the original budget, the government had set a 2 per cent poverty tax only on those earning Rs 30 crore and above. Pakistan’s negotiating team led by Finance Minister, Miftah Ismail, agreeing on an understanding on the 2022-23 budget after the authorities committed to generate Rs 43,600 crore more taxes.

Moody’s Investors Service has downgraded Pakistan’s credit rating outlook to negative from stable due to its sinking economy and lack of resources mobilisation. The only way out of the current economic crisis was through the IMF which has squeezed its budgetary proposals and future plans.

America indirectly bails out package

Pakistan had helplessly looked towards the United States for help hence got a last-minute bailout package of USD 6 billion from International Monetary Fund (IMF) especially when China has refused to give a huge loan which is required for survival as Pakistan is going Sri Lanka way.

Poverty stricken Pakistan has clinched a deal with the International Monetary Fund to restore the stalled USD 6 billion assistance package and unlock doors for financing from other sources in the world which may go a long way to get reprieve from danger of collapse of economy like Sri Lanka.

US has got its huge weightage owing to its contribution in IMF whereas China is not much relevant. The experts say that US president, Joe Biden is making efforts to keep Pakistan on his side to counter China in Asia.

US official, Ned Price had described Pakistan as strategic partner which had surprised India though Indo-US ties have assumed a big dimension and both nations want to checkmate Dragon which is spreading its tentacles through Debit Diplomacy in several Asian countries.

Pakistan has been constantly dependent upon international lending agencies and got various loans including US$ 84,000,000 in 1972, US$ 75,000,000 in 1973 and yet another of US$ 75,000,000 in 1974 to address the growing needs of the people and finance its budget.

Another standby arrangement of US$ 80,000,000 was made on urgent basis in 1977 besides an extension of loan facility of US$349,000,000 in 1980.

Pakistan minister’s appeal

Imagine the situation when government is forced to snatch poor person’s luxury of daily habit, sipping tea in the morning and daytime. It has infuriated Pakistanis who consider it as attack on their human rights.

To ab chay bhi chor dein….Kal kahenge sans bhi na lo oxygen khatam ho jayegi (So we should stop drinking tea also… tomorrow they will say don’t breathe, or else oxygen will perish)”; there was a strong reaction from majority of people whereas others simply called it a “violation of their basic rights.”

The federal budget document for the outgoing fiscal year showed that Pakistan imported Rs 1,300 crore (USD 60 million) worth of more tea than the last fiscal year. Minister Iqbal’s appeal to cut down the consumption of tea did not go down well with people as they started criticizing him on Twitter. The planning minister reportedly also asked the traders’ community to close markets by 8:30 PM to conserve energy. Pakistan’s foreign exchange reserves have dropped from around $16bn (£13.4bn) in February to less than $10bn (£8.3bn) in the first week of June, barely enough to cover the cost of two months of all its imports.

Double whammy for Pakistan

Pakistan faced double whammy as China could not ignore India during recent BRICS meeting as global diplomacy is guided and dictated by the ingredients like power, suitability and relevance which are currently beyond the domain of Pakistan, as it is reeling under financial crisis which may lead to collapse of the economy in future. India had reportedly made it clear that Pakistan may be kept out as it is of no relevance and utility in making any contribution in economic cooperation especially when it is on the verge of collapse. China could not counter it hence it had to sit out of the summit.

Chinese President Xi Jinping hosted the High-Level Dialogue on Global Development (HLDGD) during last week of June which included many non-BRICS members. Apart from BRICS member states like Brazil, Russia, India, China and South Africa, other nations also attended the meeting including Iran, Egypt, Fiji, Algeria, Cambodia, Thailand, Indonesia and Malaysia.

But Pakistan and its Prime Minister, Shahbaz Sharif was forced by India not to be part of this important meeting which is being seen as a precursor to BRICS’ expansion and it may not be a small deal for China to ensure its ally’s entry in future.

Retention in grey list

Pakistan’s track record of funding the terror activities and inherent bad policies of successive regime have been responsible for its latest retention in Grey List by financial task action force (FATF), a world watch body on terror financing which will make it extremely difficult to seek loan from other international lending agencies.

Pakistan Could not fully execute the action plan which was handed over to it by FATF in Feb. 2022 and the deadline was June, 2022. Now, It has got reprieve as FATF has given it four months to fulfill remaining one condition which will precede on the spot visit to ascertain the compliance of pre -conditions.

Analysts opine that Pakistan needs to take emergent measures to save itself from going Sri Lankan way which witnessed the collapse of its economy though IMF loan can serve as savior for the moment and pre-conditions imposed on budgetary proposals reflect the helplessness of Pakistan; hence it must stop abetting the terror activities in Kashmir which are highlighted by India during FATF meetings which will be done in future also.

(K S Tomar is national columnist and political analyst)

Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.

The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.

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