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Tag: IMF

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

    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

  • Sri Lanka’s Parliament approves IMF bailout package

    Sri Lanka’s Parliament approves IMF bailout package

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    Colombo: Sri Lanka’s Parliament on Friday approved the much-needed USD 3 billion IMF bailout package to revive the island’s economy which was hit hard by a catastrophic economic and humanitarian crisis sparked by years of mismanagement and the raging pandemic.

    Last month, the International Monetary Fund (IMF) approved the bailout programme to help Sri Lanka overcome its economic crisis and catalyse financial support from other development partners, a move welcomed by Colombo as a “historic milestone” in the critical period.

    On Friday, at the end of a 3-day debate, 120 Members of Parliament in the 225-member assembly voted in its favour of the deal while 25 of them opposed it.

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    President Ranil Wickremesinghe told Parliament that the parliamentary approval was a necessity as his government was embarking on a serious economic reform programme.

    Wickremesinghe, also the finance minister, in his Parliamentary address said it was critical for economic recovery to stabilise the economy, restore debt sustainability and build an inclusive and prosperous country.

    The main Opposition Samagi Jana Balawegaya (SJB) members who accused the government of lack of transparency in obtaining the facility were not present when the vote was taken in the House.

    Having obtained the USD 3 billion facility, Sri Lanka is currently negotiating debt restructuring with bilateral and multilateral creditors.

    Wickremesinghe said by mid-May the restructuring programme would come into effect.

    Sri Lanka in April declared its first-ever debt default in its history as the worst economic crisis since independence from Britain in 1948 triggered by forex shortages sparked public protests.

    Months-long street protests led to the ouster of the then-president Gotabaya Rajapaksa in mid-July. Rajapaksa had started the IMF negotiations after refusing to tap the global lender for support.

    Sri Lanka has introduced painful economic measures such as tax hikes and utility rate hikes to unlock the programme. Trade unions and opposition groups have organised protests against such measures.

    The programme will allow Sri Lanka to access financing of up to USD 7 billion from the IMF, International Financial Institutions (IFIs), and multilateral organisations, a statement said.

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    ( With inputs from www.siasat.com )

  • India projected to grow at 7% in 2022-23, says Sitharaman at IMF meet

    India projected to grow at 7% in 2022-23, says Sitharaman at IMF meet

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    Union Finance Minister Nirmala Sitharaman

    New Delhi: Finance Minister Nirmala Sitharaman on Friday said that with both the International Monetary Fund (IMF) and the World Bank having projected India as the fastest growing major economy in 2023, it will stay on course and is projected to grow at 7 per cent in 2022-23 as per the government’s own economic survey 2022-23.

    She said this during the plenary meeting of the International Monetary and Financial Committee (IMFC) at the IMF headquarters in Washington.

    In her intervention, the finance minister highlighted that conducive domestic policy environment along with the Indian government’s focus on structural reforms has kept domestic economic activity in India robust.

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    Sitharaman underlined the learning from the pandemic that digitalisation, especially digital public infrastructure (DPI) is a positive-catalyst for the global economy and how India’s DPI revolutionised the access and created a vibrant entrepreneurial ecosystem.

    Referring to global sovereign debt roundtable, the finance minister said it has demonstrated a constructive way forward with multi-stakeholder cooperation for other vulnerable countries and India is pleased to be part of the team that provided solution for Sri Lanka and Suriname.

    Through India’s G20 presidency, Sitharaman reiterated the commitment towards exploring solutions through stakeholder engagements, to pressing global challenges, which disproportionately harm the poorest and most vulnerable.

    In conclusion of her intervention, while urging all the G20 members to continue to support multilateral efforts, Sitharaman emphasised on engaging in positive dialogue to fight the challenge of global fragmentation.

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    #India #projected #grow #Sitharaman #IMF #meet

    ( With inputs from www.siasat.com )

  • IMF stands its ground, refuses to show any flexibility towards Pakistan

    IMF stands its ground, refuses to show any flexibility towards Pakistan

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    Islamabad: The International Monetary Fund (IMF), Pakistan’s only hope for a bailout from its crippling economic conditions and looming threats of a meltdown, does not seem to be ready to show any restraint in its demands and expectations from the current Shehbaz Sharif government, as it snubbed Islamabad’s recent request to show flexibility and go ahead with the signing of the staff-level agreement.

    In the most recent development, Pakistan’s Finance Minister Ishaq Dar had a virtual meeting with the IMF’s Director for the Middle East and Central Asia Jihad Azour, where he requested the IMF Director to show flexibility and consideration towards Pakistan and sign the staff-level agreement.

    However, Dar’s desire could not be fulfilled as he failed to convince the IMF Director to give him a date of the agreement, despite the existing dangerous and constantly worsening economic crisis in the country.

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    As per details, the IMF Director re-emphasised the issue of petrol subsidy and possible fiscal shortcomings that may trigger because of the implementation of the subsidy plan.

    “The minister (Dar) urged the IMF not to raise the issue of petrol subsidy, and objected to the IMF’s approach of seeking clarification about the schemes announced by Prime Minister Shehbaz Sharif,” a government source said.

    “The Finance Minister also requested the IMF to lower the needed foreign loan requirements by another $1 billion to $5 billion after improvement of the current account deficit,” the source added reminding that the IMF has already cut the requirement by $1 billion to $6 billion last month.

    Dar highlighted the steps undertaken by the current government to satisfy and implement the pre-conditions of the IMF, insisting that the delay in the approval of the 9th review of the IMF Extended Funding Facility (EFF) programme to Pakistan, other connected funding from global lenders like the World Bank and other multilateral institutions, have also been withheld, causing major damages to the country’s economic condition.

    “The minister informed that all prior actions for 9th review under the Extended Fund Facility have already been completed and government of Pakistan is fully committed to fulfill its obligations as agreed with the IMF,” stated a press release of the Finance Ministry.

    But to put Dar’s case to rest, the IMF maintained that all the issues remained unsettled until the deal was ratified by its executive board, irrespective of the fact whether a country met the prior actions before the staff-level agreement or after that.

    The IMF hoped that the staff-level agreement would be signed soon, highlighting the need for Pakistan to ensure visible progress on the reforms in the various sectors and complete the IMF programme in time.

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    #IMF #stands #ground #refuses #show #flexibility #Pakistan

    ( With inputs from www.siasat.com )

  • ‘Something is going to go boom’: IMF chief warns of a more fragile global economy

    ‘Something is going to go boom’: IMF chief warns of a more fragile global economy

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    But she said she did not think the world economy was headed toward a replay of the 2008 global financial crisis, despite problems in the banking sector that have surfaced in the United States and Switzerland.

    “This is not 2008,” even though the high-profile collapse of Silicon Valley Bank last month has conjured up that concern, Georgieva said.

    The 2008 crisis happened because too many financial institutions carried assets on their books that turned out to be highly overvalued. “We don’t have that now. The financial system, both banking and non-banking, is much cleaner,” Georgieva said.

    During her wide-ranging remarks, Georgieva also warned about the potential negative economic impacts of the world dividing into different geopolitical camps because of frictions caused by Russia’s war in Ukraine and other forces that are fueling suspicions between the United States and China.

    While it’s important for the West to stand up for its values, the frostier relations become, the more of a toll it would take on global economic growth, she said, referring to IMF research which estimates the potential loss from trade ranging from $200 billion to $7 trillion, or equal to about 0.2 percent to 7 percent of global gross domestic product.

    “It makes sense to aim to be on the lower end of this cost spectrum,” Georgieva said.

    The IMF chief recently returned from a trip to Beijing, where she had a chance to meet with the new economic team, including Premier Li Qiang, who took office on March 23, as part of Xi Jinping’s team for his third term as Chinese president. She described Li as “very practical, down to earth, very approachable, very clear in a commitment for China to continue to open up to be friendly to foreign investors.”

    Despite the growing tensions between the U.S. and China, Georgieva said the message she received from Chinese officials was positive.

    “The message that I got is that China is committed to multilateralism. They’re committed to trade that is based on rules. They’re committed to opening up the economy, as they have done so far. And they’re committed to play a constructive role vis-a-vis the developing world, including debt restructuring,” she said.

    She also defended the United States’ Inflation Reduction Act against the criticism that — despite its name — it is actually fueling inflation by injecting massive amounts of government spending into the system.

    “The Inflation Reduction Act is not that big on the scale of things … It is something that is going to be spent over a number of years. So it’s not going to make a big push on inflation,” she said.

    Still, the current environment of higher inflation means governments should be cautious when it comes to new spending programs, she added.

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    #boom #IMF #chief #warns #fragile #global #economy
    ( With inputs from : www.politico.com )

  • Global economy heading for weakest period of growth since 1990: IMF chief

    Global economy heading for weakest period of growth since 1990: IMF chief

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    Washington: The global economy is heading for the weakest period of growth since 1990 as higher interest rates set by the world’s top central banks drive up borrowing costs for households and businesses, the head of the International Monetary Fund has warned, a media outlet reported.

    Kristalina Georgieva, the IMF’s managing director, said that a sharp slowdown in the world economy last year after the aftershocks of the Covid pandemic and the Russian invasion of Ukraine would continue in 2023, and risked persisting for the next five years, The Guardian reported.

    In a curtainraiser speech before the fund’s spring meetings in Washington DC next week, she said that the global growth would remain about 3 percent over the next five years – its lowest medium-term growth forecast since 1990.

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    “This makes it even harder to reduce poverty, heal the economic scars of the Covid crisis and provide new and better opportunities for all,” Georgieva said.

    In a downbeat assessment as the world grapples with the worst inflation shock in decades, she said economic activity was slowing across advanced economies in particular. While there was some momentum from developing nations – including China and India – low-income countries were also suffering from higher borrowing costs and falling demand for their exports, the media outlet reported.

    Ahead of the IMF publishing revised economic forecasts next week, Georgieva said global growth in 2022 had collapsed by almost half since the initial rebound from the Covid pandemic in 2021, sliding from 6.1 percent to 3.4 percent. With high inflation, rising borrowing costs and mounting geopolitical tensions, she said global growth was on track to drop below 3 percent in 2023 and remain weak for years to come.

    As many as 90 percent of advanced economies would experience a decline in their growth rate this year, she warned, with activity in the US and the eurozone hit by higher interest rates, it added.

    Comparing the challenge to “climbing one ‘great hill’ after another”, Georgieva said there were still more problems to overcome: “First was Covid, then Russia’s invasion of Ukraine, inflation and a cost of living crisis that hit everyone.”

    “So far, we have proven to be resilient climbers. But the path ahead – and especially the path back to robust growth – is rough and foggy, and the ropes that hold us together may be weaker now than they were just a few years ago,” she was quoted as saying by the media outlet.

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    #Global #economy #heading #weakest #period #growth #IMF #chief

    ( With inputs from www.siasat.com )

  • Sri Lanka settles India’s credit line from very 1st IMF tranche

    Sri Lanka settles India’s credit line from very 1st IMF tranche

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    Colombo: Sri Lanka has used the very first tranche of the IMF loan of $330 to repay part of Indian credit line.

    State Minister for Finance Ranjith Siyambalapitiya told media that $120 million was used to settle the loan taken from India.

    “Over the recent past India gave credit lines to import much-needed essentials, including medicine and fuel, and we were to settle part of it on Thursday which we did it on that day itself,” the State Minister said.

    “It is important that we follow the debt repayment,” he added.

    Following the economic crisis and Sri Lanka defaulted on its debt
    in April last year, India provided financial support of more than $4 billion, including credit lines.

    India was also one of the first countries that helped Sri Lanka to get the IMF bailout by agreeing to restructure its debt with the troubled southern neighbour.

    Following China, Sri Lanka’s biggest bilateral creditor, agreeing to restructure its loans, the IMF agreed to award the conditional loan which would be given within a period of 48 months.

    Sri Lanka’s financial crisis with shortages of essential items such
    as food, fuel and medicine with long queues to purchase them, people took to street in March last year.

    Street fights toppled Sri Lanka’s government forcing President Gotabaya Rajapaksa to flee the country, passing his presidency to Ranil Wickremesinghe.

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    #Sri #Lanka #settles #Indias #credit #line #1st #IMF #tranche

    ( With inputs from www.siasat.com )

  • IMF Projects UK Economy to Keep Shrinking as Rishi Sunak Marks 100 Days in Office

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    Prime Minister Rishi Sunak marked 100 days in office last month. The International Monetary Fund and UK economists predicted that the UK economy would continue to shrink, despite the PM’s best efforts to stabilize the country’s markets.

    The same report predicted that China and India’s economies would account for more than half of GDP growth and stated that the UK would be the only country with an economy in recession this year. Experts expect that there will be a 0.06% overall reduction in the UK economy this year, and various cabinet members are citing several reasons for the shrinkage.

    In February, their independent Office Of Budget Responsibility warned that the recession would last at least through 2023. The UK’s economic situation is deteriorating over many factors, including the increased price of heating, gas, and oil due to Russia’s invasion of Ukraine, the fallout from Brexit, and the fact that the country’s economy never quite recovered after Covid-19 shutdowns.

    Additionally, annual inflation hit 11.1% in October and stayed at 10.5% in December, the highest in four decades. It is important to note that the overall GDP increased by 4% in 2022. However, the UK remains the only G-7 country not to recover its output after the pandemic fully.

    While Sunak blames outside forces like the Russian invasion, other experts point the finger at Brexit, which has caused much lower trade exports with the rest of Europe. The British PM focuses on expanding trade with other countries, including India. Over the last year, the UK and India have had six rounds of talking over trade and investment agreements that would boost trade by billions of dollars in both countries. While this much-needed trade agreement will help boost the economy overall, the UK has a long way to go before the government can quell its economic woes.

    As with any recession, unemployment is up, and so is inflation, further infuriating labourers, who have already organized dozens of strikes – which conservatives in the government blame for some of the economic stagnation. According to the Office for National Statistics (ONS), the UK recorded the highest number of working days lost in over 30 years in 2022. Transportation, teaching, and healthcare industries have been the most affected. With inflation continuing to rise, workers demand better conditions and higher pay. While some contracts have been negotiated, the strikes will continue as the Prime Minister and this government refuse to budge on pay raises in the public sector. Earlier in February, over half a million teachers, train drivers, and other civil servants organized a walkout, the largest coordinated labour strike in a decade.

    As the labour unions persist, members of Sunak’s own party immediately proposed a round of tax cuts, which they promise will stimulate the economy, especially job growth. Sunak has so far refused either party, saying that raising pay for workers will cause inflation to rise and that the “best tax cut right now is a cut in inflation.”

    As the workers who have jobs walk out due to economic inequality, employment is falling across the private and public sectors, which economists predict will continue into 2023. This creates its own concerns. As residents fail to believe in the country’s economy, the black market economy always sees a boost. Currently, the UK is already dealing with the black gambling market. Numerous offshore casino sites that aren’t under UK regulations and therefore, not a part of GamStop, and are currently not being taxed. Increasing illegal goods/services and off-the-books jobs is another worry for lawmakers as small businesses try to avoid taxation. According to a report published by the Institute of Economic Affairs (IEA), these black market businesses cost the UK over 150 billion euros every day, says a report published by the Institute of Economic Affairs (IEA). Of course, this is a problem all over the EU, where over 30 million people work or run businesses without paying taxes.

    The rising cost of imports, like food and energy, has particularly alarmed families across the UK. In combination with rising inflation, it caused a curb on spending, leaving the country in a loop where they can’t quite stimulate new growth. With nothing in the works to address those families, Sunak’s government has instead focused on new trade with Ireland and India in recent weeks. A dispute over trade routes in Northern Ireland has added to rising costs and completely shuttered Belfast’s government, which Sunak seeks to alleviate. The PM says some progress has been made, but any concessions will likely anger his own party.

    With two years left until reelection season and crushing economic predictions, Rishi Sunak will have a long fight ahead of him if he stands a chance of keeping his position. While Sunak is downplaying the role of Brexit, which he has been a long-time supporter of, many across the country are now finding that the economic fallout deeply affects every corner of the economy. With decreased foreign investment after the event, European and American companies have continued to resist investment opportunities in the UK.

    Instability in the economy is the number one reason many companies pulled their investments. Then, last year, Liz Truss produced several (now abandoned) unpopular plans to cut taxes, which angered critics and caused further divestment. As she left her very short-term, most investors pulled out again, causing the economy to plummet. Though this up-and-down has remained chiefly quiet as Sunak’s continued leadership is once again signalling that it may be safe for foreign companies to reinvest, these new economic reports may further deter this.

    In current opinion polls, the Conservative party is trailing the Labour Party by about 20 points, and some election experts are already predicting Sunak’s defeat. With local elections looming in May and polls showing a disgruntled populace that wants a change in leadership, the UK’s economy may not recover as quickly as the country’s leadership hopes.

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    ( With inputs from : kashmirlife.net )

  • Pak finance minister hopeful of signing bailout deal with IMF this week

    Pak finance minister hopeful of signing bailout deal with IMF this week

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    Islamabad: Pakistan’s Finance Minister Ishaq Dar vowed on Thursday that the government was “absolutely committed” to completing the current USD 7 billion bailout programme with the IMF, once again indicating that the cash-strapped country could sign the staff-level agreement with the global lender this week.

    The Pakistan government is in a race against time to implement measures to reach an agreement with the International Monetary Fund (IMF) as the country has reserves barely enough for three weeks of essential imports, while hotly contested elections are due by November, Dawn newspaper reported.

    Addressing a seminar organised by the Finance Ministry here, Dar said: “My team and I have decided that, in a short period of time, we will implement and we will discharge all the sovereign commitments that the previous government had made.” Pakistan and the IMF have been holding virtual talks after the two sides held 10 days of intensive negotiations with an IMF delegation in Islamabad from January 31 to February 9, which failed to reach an agreement.

    He recalled that the coalition government was handed over an economy “in a shambles”.

    “To top it [off], the previous government (led by Imran Khan) had agreed to a loan facility which was extended by the IMF. But instead of honouring the commitments, they reversed some conditionalities before leaving office. This led to a serious trust deficit [between the lender and Pakistan],” he highlighted.

    However, the minister went on to say, the government had realised that these obligations were not made by an individual but by the sovereign state of Pakistan and decided to honour the commitments.

    “We have been in the process of the 9th review which has taken longer than it should have […] we seem to be very close to signing the staff-level agreement, hopefully in the next two days,” Dar added.

    The agreement with the IMF on the completion of the ninth review of a USD 7 billion loan Extended Fund Facility programme — which has been delayed since late last year over a policy framework — would not only lead to a disbursement of 1.2 billion but also unlock inflows from friendly countries.

    The prerequisites by the lender are aimed at ensuring Pakistan shrinks its fiscal deficit ahead of its annual budget around June.

    Pakistan has already taken most of the other prior actions, which included hikes in fuel and energy tariffs, the withdrawal of subsidies in export and power sectors, and generating more revenues through new taxation in a supplementary budget.

    Prime Minister Shehbaz Sharif announced a slew of austerity measures last month, including cabinet members forgoing their salaries, paying their own bills, banning the purchase of luxury vehicles from 2024, and slashing the current expenditure by 15 per cent, among others.

    The finance minister further said that Pakistan’s economic difficulties were compounded by the devastating 2022 floods, which caused physical and economic losses of nearly USD 30 billion.

    The floods, which inundated a third of Pakistan, destroying land, crops, and infrastructure, left more than 1,700 persons dead.

    “But despite the fiscal constraints and limitations, the federal and provincial governments have jointly allocated Rs 452 billion for relief and rehabilitation work of flood affectees.

    “This persistent fake propaganda regarding the country defaulting on its international obligations is completely ill-founded and null […] in fact it harms the country,” he maintained, adding that “petty politics” was only doing more harm to the cash-strapped country.

    Dar said that he had been appealing to the political parties to sit together and sign a charter of economy, but regretted that it always fell on “deaf ears.”

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    #Pak #finance #minister #hopeful #signing #bailout #deal #IMF #week

    ( With inputs from www.siasat.com )