Long-term IMF bailout plan would be an economic disaster for Pakistan

Pakistan’s crippling economy is in emergency need of another bailout plan from the IMF (International Monetary Fund) through its Extended Fund Facility (EFF) to save it from a suspected meltdown. However, an economic expert is wary of entering into a long-term plan with the IMF, terming it as a debt trap which would turn Pakistan into another Argentina.

Dr. Ashfaque Hasan Khan, a senior financial expert and economist, has expressed serious concerns over the new government’s plan to seek a long-term financial funding facility from IMF, warning them to stay extremely cautious.

“Pakistan should seek the new IMF loan package of $3-4 billion for a maximum period of three years, as a longer and larger programme would be an economic disaster, potentially making Pakistan another Argentina, which is stuck in a debt trap,” he said.

Dr. Ashfaque highlighted that Pakistan government’s plan to seek an $8 billion loan for a five-year programme, would be a disaster.

“The government of Prime Minsiter Shehbaz Sharif, Finance Minister Muhammad Aurangzeb, and the economic team should focus on attracting foreign investment from Special Investment Facilitation Council (SIFC) platform and implementing reforms to strengthen the domestic economy instead of investing its time and efforts to acquire new debt to repay maturing debt,” he said.

Comparing Pakistan to the ‘future Argentina’, in case it goes into long-term funding facility from the IMF, Dr. Ashfaque said that Argentina has been under the IMF programme for almost half a century now.

“Argentina has continually increased the size of the programme, now close to $43 billion, and has emerged as the largest customer of the IMF. Hence, Argentina will never break free from the IMF’s clutches,” he said.

“Pakistan should not make the same mistake. It is going to turn into a never-ending debt trap. The larger the amount it borrows from the IMF, the larger the repayment will be. Our foreign exchange earnings will not be enough to repay the larger amount. Hence, we will further increase the size of the IMF loan, ultimately becoming like Argentina,” he added.

The IMF has dictated Pakistan’s economic decision making as it struggles to stay afloat and tackle a financial shutdown. IMF has been strict with Pakistan as it set tough preconditions to meet for the government before being eligible for any long-term bailout.

The IMF compliance has forced an increase in fuel and energy prices; while inflation has sky rocketed to over 35 per cent. The inflation, lack of business opportunities and job losses have pushed the locals into severe financial crisis.

Now, with the new government in place, it is expected that the first step will be to go to the IMF for a long-term financial funding facility. However, with experts cautioning the government to not get carried away with its acquiring limitations, the coming days would certainly be a time for the new finance minister and his team to join heads and work out a plan to get Pakistan out of the economic crunch and also save it from the IMF debt trap.