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IMF expected to approve $6 billion loan package for Pakistan as austerity bites

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IMF expected to approve $6 billion loan package for Pakistan as austerity bites

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Photo: Reuters

The IMF’s Executive Board is expected to approve a $6 billion bailout package for Pakistan today.

The anticipated approval comes after Prime Minister Imran Khan’s government unveiled an austerity budget last month in which it committed to severe expenditure cuts and improved tax collection measures to reduce the country’s 7% budget deficit. In an early demonstration of its austerity commitments, Islamabad slashed natural gas subsidies yesterday, causing prices to jump by some 200%.

Interest rates will likely be raised to address an inflation rate of about 9%, while the rupee will be devalued to improve exports and bring down Pakistan’s current account deficit of some $11 billion. These are long-term measures that should stabilise Pakistan’s volatile economy but will dampen growth in the short-term.

Further short-term consequences will be a rise in the cost of living and a clampdown on tax evasion. Taken together, these measures will be extremely unpopular. PM Khan has a mandate until 2023, so he has the time to implement these reforms to ensure Pakistan’s economic sustainability in the long-term. However, rising discontent that could readily translate into instability—possibly in the form of public protests—will test the PM’s resolve to implement the reforms that are conditional for today’s bailout.

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