The IMF and Pakistan have reached a staff-level agreement at last, on a new nine-month bailout package of $3 billion, after the current bailout package of $6.5 billion ended on Thursday with Rs 2.5 billion still undisbursed. As a result, all threats of a default should now stop, at least for the coming financial year. The deal still needs formal approval in the July meeting of the IMF Executive Board, but its effects will be felt immediately. Among other things, the effect on the local money markets will be positive enough to notice. The rupee should rise almost at once, as speculators begin to unload their holdings, and exporters repatriate the proceeds they have been hanging on to. The stock market has been buoyed for the last week on the prospect of an agreement, it should rise further now that an agreement has actually been reached. Another major benefit is that all those bilateral donors who had tied disbursement of loans to an IMF package, will now loosen their purse-strings.
Has the government of Pakistan merely kicked the can down the road, or will it actually use the breathing-space the economy has gained to carry out the changes needed to ensure that the country is not placed in the position it has found itself in, on the verge of default, and needing another IMF bailout to survive? Reforms have to be directed in a fashion that the next financial year should see foreign exchange inflows sufficient to finance the country’s debt while continuing to pay for imports. It is also not all clear who will be in charge of economic decision-making at that point, what with elections due soon, and even if they are moved forward somehow, it seems likely that the end of the package would see an elected government in place.
While there might be a few measures which can be taken over the fiscal year, it has to be accepted that there is no quick fix, and that a solution means involving several governments. Now is the right time for a Charter of the Economy, an agreement by all parties on certain outlines of economic policy, from which there shall be no deviation. It would show that the country is treating the current agreement not as a goal in itself, but as the breathing-space it actually is.
