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how to improve Economy of Pakistan

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how to improve Economy of Pakistan

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  • September 2013
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Summary: Relations with Washington are improving as Islamabad appears more cooperative in easing the Americans way out of Afghanistan. The IMF has agreed to a higher loan than expected, contributing decisively to avert a Pakistani default in the coming months. But Sharif is struggling to keep the army under control and renewed border clashes with India endanger the only strategy which could allow the Pakistani economy to take off, that is a full pacification with the eastern neighbour.

Sharif woos IMF
After initially agreeing to a US$5.3 billion loan to Pakistan (Islamabad had asked US$7.2 billion), the IMF decided to raise its loan to US$6.6 billion, conditional on fiscal reforms being implemented. So far the Pakistani government cut electricity subsidies and started chasing up tax evaders. Although Nawaz Sharif has been more successful than expected with the IMF, the worry in Pakistan remains that the ruling elite might once again fall in the trap of relying on foreign borrowing to fill the gap in public finances. With foreign debt at over US$50 billion already, half of the state budget is already funded with foreign loans and with just 2% of the population paying any tax, the path is clearly unsustainable. Most tax revenue comes from the oil and mobile telephone sectors. There is now pressure on the government to tackle the issues of loss making state run enterprises, which altogether are costing to the country 500 billion rupees annually. The IMF’s generosity was the result of pressure from Washington and might in part be a reward for Pakistan’s greater collaboration in trying to open up negotiations with the Afghan Taliban.

Saudi Arabia too is coming to Pakistan’s succour: the Saudi Islamic Development Bank Group Ltd pledged a US$997 million credit line and a $200 million trade facility for Pakistan to buy petroleum products. In this way Islamabad should be saved from a default: it has now only US$5 billion in reserves left, which would last only for...