The Senate Finance Committee got details about the country’s relationship with the IMF while grilling officials from the Economic Affairs Division and the State Bank of Pakistan, which, while not really revealing anything new or unexpected, did shed a garish light on the Fund’s relationship to Pakistan, and particularly on the new IMF package, for which the government seemed willing to bend over backwards. Clearly, the IMF is primarily a business organization, which has been repaid $21.7 billion of the $29 billion it had lent, receiving $3.5 billion in interest. That seems to mean that the $7 billion package will actually just suffice to act as a kind of rollover of the existing principal debt. It should be noted that the IMF has made it a condition that Pakistan must get China, Saudi Arabia and the UAE to roll over their loans.
Though the committee went into some detail on project loans, whether multilateral or bilateral, the fact remains that IMF loans are never for any project, and are designed to help the country avoid any foreign exchange difficulties it might face, which it does mainly because of debt servicing. Though Pakistan is far from the IMF’s biggest debtor, which is Argentina at $43 billion, it is sandwiched between Ukraine and Ecuador, which respectively owe the IMF $9 billion and $6 billion. At least for the IMF, therefore, Pakistan is Too Big To Fail. Does this change the power dynamic in Pakistan’s favour? It might, for it means that Pakistan may feel that it need not take the steps recommended by the IMF, because it will always come to Pakistan’s rescue.
The problem seems to be that while project lending was based on the premise that the loan would be repaid by increased revenue and exports projects, programme lending has no clear path. Only now has the IMF spoken of the need for an increase in exports, even though perhaps even more than bringing businessmen within the tax net, it was necessary to increase exports to repay the programme loans. Fiscal space is the term used when vague explanations are made, though it is not mentioned how huge repayments (now the single biggest component of the federal budget) in debt servicing, which represent money winkled out of tax payers pockets, are beneficial.
