Federal Finance Minister Muhammad Aurangzeb has disclosed that Pakistan will apply for $1 billion from the IMF’s Resiliance and Sustainability Facility at a time when Punjab is failing to meet an IMF condition for its already existing Extended Fund Facility of $7 billion. This will merely add more debt, and more pressure, on Pakistan, for the RSF is, like other IMF facilities, a loan. Like other IMF facilities, it is not interest-free. The RSF may be concessional in the sense that principal repayments are put off for 10 and half years, and there is a 20-year repayment period, but the interest, which depends on the SDR rate, will accrue every year.
One of the main concerns is that the RSF is linked by the IMF to its other programmes, and one of the eligibility criteria is being on a programme. In short, the country must already be in trouble. Further, it must also have met IMF conditions already. The RSF will be given only if a separate set of conditions are fulfilled. Thus a country already meeting IMF conditionalities will find itself saddled with a new set of criteria to meet. What happens if the criteria contradict each other is not said, but if a main programme is cancelled or terminated, so is the RSF. Also, its reviews are held at the same time as those of the main programme. Mr Aurangzeb also spoke about the possibility of getting Panda bonds issued, not so much because Pakistan needs the money, as because it means getting into that market. It seems that Mr Aurangzeb has got into the mindset of the past, where getting loans was a good thing. First there is the issue of climate justice, where the First World first ruins the environment, then makes the Third World pay for the consequences, with loans it makes. Then there is the issue of what Pakistan will do with the money: pay off import bills for fuel, edible oil and pharmaceuticals.
There is still apparently no plan to increase Pakistan’s exports, cut imports and escape the debt trap. Getting into more debt does not seem to be the solution. Pakistan needs to be more cautious in its borrowing. Indeed, it must try to follow the most cautious policy of them all, of not borrowing. If it does.
