Scrutiny of IMF’s financial Strategy
The International Monetary Fund’s( IMF) financial strategy for Pakistan, which emphasizes strict financial connection through reduced spending and increased profit, has come under significant scrutiny.
Concerns from Critics
Critics, including Murtaza Syed, a former deputy governor of the State Bank of Pakistan andex-IMF functionary, have raised enterprises about the strategy’s lack of focus on debt restructuring.
Lack of Debt Sustainability Focus
In his article “Debt Will Tear Us Apart (Again)”, Syed points out that recent IMF discussions have failed to address debt sustainability. This is surprising given that Pakistan secured a staff-level agreement with the IMF for the 24th time, despite the IMF nearly declaring Pakistan’s debt unsustainable in May. Syed suggests that both Pakistan and the IMF might be avoiding a transparent evaluation of the debt burden.
Repercussions of Current Strategy
Syed warns that the current “extend and pretend” approach could have severe repercussions, imposing harsh austerity measures on a population already struggling with stagnant incomes, a historic cost of living crisis, and political instability.
Potential Impact on Creditors and IMF’s Reputation
He argues that this strategy may lead to deeper losses for creditors and further damage the IMF’s reputation.
Pakistan’s Debt Crisis
Syed provides stark numbers illustrating Pakistan’s debt extremity. The country owes an normal of $ 19 billion in top disbursements annually, which exceeds half of its import earnings. also, Pakistan will need at least $ 6 billion per time to cover its current account deficiency, bringing its total external backing needs to around $ 25 billion annually until 2029.
Interest Payments and Economic Impact
Moreover, the government will need to allocate an average of 6.5% of GDP for interest payments on existing debt over the next five years.
Criticism of IMF’s Optimistic Forecasts
Syed criticizes the IMF’s optimistic forecasts for Pakistan’s economic variables, noting that previous predictions have often been unrealistic. He argues that fiscal consolidations, especially in a weak global environment, tend to fail in making debt more sustainable.
Call for Balanced Approach
In conclusion, Syed calls for a shift from harsh fiscal measures to a more balanced approach that includes debt restructuring, to reduce financial pressures and support economic development.