An overview by Zafar Iqbal !
How can securing loans a matter of celebration? Loans are temporary relief unless it is realized, these are to pay back. Then, loans with interest & domestic conditions are even harder to pay back. Generally, the nations take loans to reform & restructure the economy but Pakistan takes it to pay back other Loans and fill the gaps of import based economy.
Since inception, Pakistan has been facing currency decline. Then, imports are always outweighing exports resulting in the depression of currency value & shortage of foreign reserves. The fundamental issue is the structure of economy which is import oriented. Unless, Pakistan develops an export base economy, it will continue to face liquidity crisis. It requires short, middle & medium term economic plans.
Then, loans are not economic taboos. World economies face recessions & they seek economic help. It all depends upon how a country utilizes it. The west had utilized the loans successfully to get out of economic destruction in the aftermath of world war II. However, Pakistan doesn’t utilize it to revamp economy. Loans are short term economic breathings and must be utilized to sustain the economy by reforming and restructuring.
Pakistan takes loans from the IMF for various reasons, such as:
To stabilize its economy and boost growth while expanding its social safety net to protect the poor.
2.
To address domestic and external imbalances, ensure fiscal discipline and debt sustainability, and maintain a market-determined exchange rate and rebuilding external buffers.
3.
To cope with shocks ranging from natural disasters to large swings in commodity prices.
4.
To restore investor confidence by addressing the problems that led to capital flight or loss of competitiveness.
5.
To create breathing room as it implements policies that restore economic stability and growth.
Now, real question arises whether Pakistan utilize the funds accordingly. Pakistan has been entangled in a vicious circle as most of the loans are paid to pay off the loans. Therefore, Pakistan needs to restructuring its economy.
Some of the strategies that Pakistan should adopt to finish IMF loan programs are:
1.
Enabling a proactive monetary policy to slow inflation and ensure greater exchange rate flexibility to rebuild reserves.
2.
Targeting an underlying primary surplus by restraining spending and boosting revenue.
3.
Resuming reforms including timely adjustment of power tariff and reducing poverty levels, strengthening governance and social safety net.
4.
Promoting prudent macroeconomic policies that support financial stability and growth.
5.
Meeting the IMF’s conditions for the release of loan tranches, such as raising the general sales tax, hiking fuel and gas prices, and tabling a finance bill. Taking loans is not a luxury. Therefore, it’s important to implement the agreement in letter and spirit so that future deals with the international community may be secured.
Pakistan needs dollar to maintain solid foreign reserves. The best way to ensure dollars is to export maximum and it can only happen if Pakistan restructure it’s economy.
Some of the ways that Pakistan can ensure more liquidity other than IMF & other forums are:
1.
Diversifying its exports and increasing its competitiveness in the global market.
2.
Attracting more foreign direct investment and remittances from overseas Pakistanis. Although, local direct investment LDI is far better than FDI.
3.
Improving its tax collection and reducing tax evasion.
4.
Seeking alternative sources of financing from friendly countries or international financial institutions.
5.
Enhancing its digital economy and innovation. Service sector can play a vital role in exporting skills abroad.
Lastly, IMF deal might temporarily evade economic disaster. However, it is always on the way, and can only be put off if economy is restructured on export structures & preferences.
