IMF Moves Toward Pakistan Loan

IMF Moves Toward Pakistan Loan

The International Monetary Fund has moved closer to approving a multi-billion dollar loan package for Pakistan. Staff-level negotiations with Pakistani officials have produced a tentative agreement that will now be reviewed by the Fund’s executive board. The IMF statement painted a grim picture of Pakistan’s economy:

Pakistan faces a challenging economic outlook, compounded by an uncertain global and regional environment. Macroeconomic imbalances have combined with longstanding structural problems, particularly in the energy sector, to sap the country’s growth potential. Growth has only averaged 3 percent over the past few years, well below that needed to provide jobs for the rising labor force and to reduce poverty. Technical and financial problems in the energy sector have led to large-scale power outages which have depressed output and imposed hardship on the public at large. A difficult business climate has contributed to a sharp fall in private investment. Weak performance in large public enterprises in key industries constitutes a drag on the public finances and on economic growth. Falling capital inflows have been insufficient to finance even a modest current account deficit, leading to large reduction in international reserves.

The IMF’s proposed fixes focus on the energy sector and privatization of state-owned firms:

The authorities’ program includes a comprehensive strategy for tackling the country’s long standing energy problems through measures to address the ‘circular debt’ accumulated in the sector, tariff rationalization, and promotion of investment for energy generation and modernization….Restructuring and privatization of public enterprises—including those in the energy sector—are intended to help restore fiscal stability as well as boosting investor confidence in Pakistan’s future economic prospects and opportunities, leading to higher growth and job creation.