Despite billions of US aid dollars, the Pakistan government find itself dangerously cash strapped, forcing it to seek economic assistance from the International Monetary Fund.
Defence budget to be slashed by 30%, taxes set to rise further
LAHORE: Despite billions of US aid dollars, the Pakistan government find itself dangerously cash strapped, forcing it to seek economic assistance from the International Monetary Fund to avoid defaulting on its debt obligations. However, the international donor has made it clear to Islamabad that it will have to cut its defence budget by 30% in the next four years to become eligible for a bailout package.
The IMF is expected to sanction $9.6bn for Pakistan during the next three years at a mark-up rate of 16.7% per annum, but not without clamping a virtual economic martial law on the country in the shape of harsh conditions. Sources from the ministry of finance conceded that if Pakistan accepted the IMF funding, it would also have to reduce the number of posts entailing pension in the government and semi-government departments from 350,000 to 120,000.
Wrecked by political instability and hard hit by global economic crisis, Pakistan is teetering on the brink of default. The country’s foreign reserves have dwindled to around $4.5bn, equivalent to about six weeks of imports; foreign investors have fled the country in droves and the rupee has fallen sharply. The country’s inflation is running at around 25%, and its foreign currency reserves are rapidly depleting, forcing the government to seek emergency cash advance from friendly countries and international financial institutions.
Therefore, Pakistan is discussing a $10bn to $15bn support package from the IMF and other bodies. The money will be available at 5-6% interest besides an enforced clampdown on the monetary policies to qualify for the loan, including introduction of fresh taxes on public utilities.
Therefore, many believe the country has actually gone back to the 90s when the economic sovereignty was mortgaged to the IMF, which used to draft national budgets. Experts here believe that even if Pakistan succeeds in avoiding an imminent default, it would not be able to avoid a rapidly deepening economic and political crisis.
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