IMF Grants $3 Billion Loan to Pakistan: A Cause for Celebration or Concern?

On knowing of the IMF decision to grant a 3 billion dollars loan to Pakistan, the Prime Minister of Pakistan Shahabaz Sharif said repeatedly in a press conference ” Alhamdulillah ”.


https://www.youtube.com/watch?v=-fdu9qnr-08&pp=ygUXc2hhaGJheiBzaGFyaWYgaW1mIGxvYW4%3D


Many Pakistanis are gloating over this loan by the IMF as if it is the end to all their economic woes. The Pakistan stock exchange has rallied, currency exchange rate has improved, and there is an atmosphere of glee and revelry in some quarters.
However there is another, darker side to the picture.

It is a loan, not a gift. Pakistan already has external debt of over 126 billion dollars, to which this will be added.


https://www.orfonline.org/research/debt-ad-infinitum-pakistans-macroeconomic-catastrophe/#:~:text=During%20April%2DJune%202023%2C%20the,burden%20is%20US%24%204.5%20billion


https://economictimes.indiatimes.com/news/international/world-news/pakistan-needs-to-pay-usd-77-5-billion-in-external-debt-risk-of-default-real-says-us-think-tank/articleshow/99323626.cms.


This loan will cover less than the cost of Pakistan’s monthly import bill.

Loans carry interest, and this fresh loan will add to the debt servicing bill, which is already very high ( about 4.5 billion dollars )

https://www.brecorder.com/news/40247035
https://tribune.com.pk/story/2406940/cost-of-debt-servicing-up-to-rs318tr

The iMF reportedly set very strict conditions before granting this loan.
For instance,
(a) the heavy subsidy on electricity supplied will be removed. This will raise electricity rates to historic heights, affecting everyone in Pakistan.
https://www.youtube.com/watch?v=PhFXSw0MZMs&pp=ygUmcHJpY2VzIGluIHBha2lzdGFuIHJpc2UgYWZ0ZXIgaW1mIGxvYW4%3D
(b) Duty on petroleum products will sharply increase
(c) There will be 220 billion dollars worth additional taxes
(d) Prices of essential commodities like food will rise


This reminds one of the situation in France before the French Revolution of 1789. The situation then was that the French monarchy was heavily in debt to foreign bankers ( mainly Dutch ). This was because of the heavy cost of supporting the American War of Independence (1775-81), and even more because of the great deficit between government income and expenditure ( primarily because, by feudal convention, the nobility could not be taxed ).


https://courses.lumenlearning.com/suny-hccc-worldhistory2/chapter/efforts-at-financial-reform/


The French Finance Minister, Necker, who dared not tax the powerful nobles, took loans from foreign banks to pay the huge debt. His successor, Calonne, went even further. He initiated huge public spending, thinking this will impress the creditors into granting more loans.


However, this plan backfired, because the Dutch and other foreign bankers realised they would never recover the loans ( what to say of interest ), and so a time came when they outright refused to grant any further loans. This led to the calling of the Estates General in 1789 and the French Revolution, in which many heads rolled.


I am afraid the Shahbaz Sharif Govt is heading in the same directiion. Can a government run forever on foreign loans ? The people of Pakistan are already suffering terribly in the economic crisis which has gripped the country. Taxing them further, directly or indirectly, as the IMF loan in essence requires, may well break their backs

2 thoughts on “IMF Grants $3 Billion Loan to Pakistan: A Cause for Celebration or Concern?”

  1. They are desperately trying to drag the broken cart of West Pakistan on two wheels of * JHOOT & * SOOD. IMF has added a half wheel of* BHEEK. How can West Pakistan survive after East Pakistan? The province will go back to their respective positions as they were before August 14, 1947.

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