5 repercussions of going to IMF

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5 repercussions of going to IMF

Pakistan is now going to the International Monetary Fund (IMF) for yet another bailout as the new government claims to have been left empty-handed by the previous one. The country’s economy continues to tremble with a balance of payment crisis, increasing inflation and deteriorating economy.

Here’s a list of repercussions that Pakistan may face for its IMF bailout:

  1. Imposing long-term economic problems on the nation

The USD 10 billion financial bailout no doubt will only be granted if Pakistan proves it to IMF that it can repay the amount of the grant. For this to happen, the government will increase price of utility products like electricity and gas. This will increase the cost of production at the industrial level, resulting in loss of international contracts for Pakistani manufacturers and the subsequent drop in exports.

  1. Sudden wave of inflation

The IMF’s financial rescue will bring a sudden wave of inflation as the PTI government levies indirect taxes over basic utility prices such as petroleum and electricity. This will not only disturb the already struggling economy but also bring the government under pressure because of its claims of giving relief to the masses during its election campaign.

  1. Spike in foreign debt

Pakistan’s IMF billion bailout plan will this time be much bigger than the previous plan doled out for the country – almost 40% more than the one that PML-N government received from IMF. PTI has been extremely critical of the previous governments for running the country on loans. Imran Khan once went as far as claiming that he’d rather commit suicide than begging for loans from other countries. But what rather seems to be in store for the nation is a bigger loan than all previous ones. We can only hope that we don’t end up in a bigger debt crisis than the one we already are in.

  1. Political capital loss

The newly formed government that won the 2018 general elections on tall claims of ‘Tabdeeli’ will not only face an economic backlash but also a loss of political capital along with its credibility. Prime Minister (PM) Imran Khan had repeatedly vowed not going to the IMF for bailouts or imposing indirect taxes that are crushing the poor nation. His opponents are now going to be grilling him for the next few years on the political talk shows, in the streets, on the social media and everywhere possible. And because this is exactly what PTI did to them, it won’t be unfair either.

  1. Balance between Chinese investment and IMF
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Pakistan going to the IMF for a financial bailout will leave the country in the middle of a trade tug of war between two global economic powers, United States (US) and China. This ‘cold trade war’ is right now being fought on our very soil as China, with its biggest initiative under BRI being pursued in Pakistan under the banner of China-Pakistan Economic Corridor (CPEC), will be uneasy over its projects being scrutinized and some of them even being discarded potentially due to one reason or the other since it is one important clause of the IMF bailout agreement. The US, being the biggest financer to the IMF, will have leverage over Pakistan through the bailout to discredit China’s secretive deals with Pakistan under CPEC. PM Khan has also vowed to make the ‘secretive’ CPEC deals public and this could well be a part of the agreement between his government and the IMF. Will China be happy with it? Doesn’t seem likely.

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Anum Mohsin

The author is an IR graduate and is an aspiring journalist.

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