Pakistan IMF Loans
Pakistan's four month trade deficit soars to a whopping $7.5 billion which is 33 per cent higher than last year, the country needs foreign inflows urgently to support its fast depleting foreign exchange reserves now standing at $6.1 billion as against $7 billion nearly two weeks ago. This situation is worsening due to three main principals pointed out by Governor SBP: increased public sector borrowing (Rs369 billion), imports up by nearly 35.2 per cent and also due to inflation.
Pakistan is to approach 'Friends of Pakistan' but they seem to be reluctant on lending to Pakistan until it follows a strict monitoring by the IMF and any expectation from them seems bleak. Pakistan's last resort was to approach the IMF knowing that the loan itself comes with extreme conditions. But does Pakistan have a choice? IMF board plans to meet soon to review the $7.6 billion loan to meet Pakistan's serious BOP difficulties. But in return they ask for many things. Higher interest rates, higher taxes especially agricultural tax, reducing non developmental and other expenditures, free float of exchange rates and zero borrowing from the SBP.
Due to our ever increasing inflation rates up to 25 per cent, IMF currently insists on higher interest rates. There was too much pressure building on the SBP from them and the interest rates were forced to increase by another 2 per cent, now currently at 15 per cent highest increase in more than a decade.
The rise in interest rates is one of the tools to battle inflation which can adversely affect growth, investment and lead to poverty and unemployment. Debates continue that the world is in a recession and is cutting credit cost to boost economic growth then why not us? We need to understand that we are in a completely different position. If we ease interest rates and follow fiscal expansion and monetary easing, government spending will rise and economy could head towards hyperinflation which would be uncontrollable and can put our economy in
Pakistan is to approach 'Friends of Pakistan' but they seem to be reluctant on lending to Pakistan until it follows a strict monitoring by the IMF and any expectation from them seems bleak. Pakistan's last resort was to approach the IMF knowing that the loan itself comes with extreme conditions. But does Pakistan have a choice? IMF board plans to meet soon to review the $7.6 billion loan to meet Pakistan's serious BOP difficulties. But in return they ask for many things. Higher interest rates, higher taxes especially agricultural tax, reducing non developmental and other expenditures, free float of exchange rates and zero borrowing from the SBP.
Due to our ever increasing inflation rates up to 25 per cent, IMF currently insists on higher interest rates. There was too much pressure building on the SBP from them and the interest rates were forced to increase by another 2 per cent, now currently at 15 per cent highest increase in more than a decade.
The rise in interest rates is one of the tools to battle inflation which can adversely affect growth, investment and lead to poverty and unemployment. Debates continue that the world is in a recession and is cutting credit cost to boost economic growth then why not us? We need to understand that we are in a completely different position. If we ease interest rates and follow fiscal expansion and monetary easing, government spending will rise and economy could head towards hyperinflation which would be uncontrollable and can put our economy in