Borrow or not borrow from IMF: Between the devil and deep blue sea
In 2008, Pakistan borrowed nearly $8 billion from the IMF and began repayments in 2011. Now Pakistan is due to pay almost $5billion by end 2014. Question arises what previous government has done with $8 billion. In principle this amount need to be used to undertake adjustments and structural changes to avoid future borrowing dependency and to create internal capacity to repay the loan. Sadly, little have been done on this front.
If Pakistan does not borrow then it will face the problem of balance of payment crisis, as foreign exchange reserves are available only for 6 weeks imports. According to Asian Development Bank, Pakistan needs between $6-$9 billion to avoid a balance of payments crisis. On the other hand, if new government goes for borrowing then it has to bear several costs as follows:
It has to impose general sales tax, which will be unwelcomed by taxpayers.
It has to reduce fiscal deficit from 8% to 3.5%, which will require tough time for those who will bear the burden, particularly poor.
Federal government has to insist provinces to generate surpluses to contribute to consolidate fiscal burden.
It has to bring public debt GDP ratio from the current 62% to 42% that will keep the government under tight constraint.
What is the way forward?
In 2008, Pakistan borrowed nearly $8 billion from the IMF and began repayments in 2011. Now Pakistan is due to pay almost $5billion by end 2014. Question arises what previous government has done with $8 billion. In principle this amount need to be used to undertake adjustments and structural changes to avoid future borrowing dependency and to create internal capacity to repay the loan. Sadly, little have been done on this front.
If Pakistan does not borrow then it will face the problem of balance of payment crisis, as foreign exchange reserves are available only for 6 weeks imports. According to Asian Development Bank, Pakistan needs between $6-$9 billion to avoid a balance of payments crisis. On the other hand, if new government goes for borrowing then it has to bear several costs as follows:
It has to impose general sales tax, which will be unwelcomed by taxpayers.
It has to reduce fiscal deficit from 8% to 3.5%, which will require tough time for those who will bear the burden, particularly poor.
Federal government has to insist provinces to generate surpluses to contribute to consolidate fiscal burden.
It has to bring public debt GDP ratio from the current 62% to 42% that will keep the government under tight constraint.
What is the way forward?
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