IMF loan is a lifeline to get out of economic quagmire

The successful conclusion of an international monetary fund (IMF) loan worth $7.6 billion (Dh27.89 billion) for Pakistan yesterday, gave cause for celebration to Pakistan's finance ministry officials.

The IMF loan is the single most vital recent development meant to stave off an upcoming crisis on Pakistan's foreign debt payments. Short of the IMF loan at a difficult time, Pakistan would have faced its first ever default on foreign payments.

The IMF's loan is likely to have come with some important conditions, pushing Pakistan towards greater financial responsibility.

Some of the IMF's own announced targets for Pakistan's future economic trends include such vital steps as reducing the government's fiscal deficit to 4.2 per cent of gross domestic product in the financial year to June 2009, and a further reduction of the fiscal deficit to 3.3 per cent of gross domestic product in the financial year to June 2010.

These targets for the fiscal deficit are a radical improvement over the fiscal target being 7.4 per cent of gross domestic product during the last financial year which ended in July this year.

The IMF is also keen on the central bank tightening its monetary policy so that annual inflation is brought down to six per cent by 2010, significantly below 25 per cent at the moment. Other objectives for the central bank include a significant building up of its depleted foreign currency reserves while also putting an end to the government's borrowing from the central bank.

In addition to such important objectives, the IMF is also keen that the government increases its spending on social sectors so that safety nets are provided and constantly improved to take care of those in need.

On the face of it, the IMF programme recommends all of the significant policy measures that must be central to improving Pakistan's future outlook, and includes reforms that should have been undertaken by the country a long time ago.

Opposition

And yet, many among Pakistan's nationalists are vigorously and vociferously opposing the IMF deal. Ahead of the IMF's announcement, Malek Mohammad Afzal Khokhar, a leader of the opposition Pakistan Muslim League, was reported in Pakistani newspapers to have said that after taking the IMF loan, Pakistan will get locked in an economic whirlpool.

Such positions may be politically driven but they have little relevance to reality on the ground in Pakistan, where worsening economic conditions are increasingly diminishing prospects for the future.

Going forward, it is vital that Pakistan radically improves the fundamental dimensions of its economy so that it does not land itself again in the kind of economic quagmire which has stood at the heart of its recent woes. For too long, poor quality management of the country and profligate spending have affected Pakistan's economic development.

For months, Pakistan's newly elected political government has failed to give a clear political direction though it has been under growing public pressure to do so.

As political disarray has continued, large investors have lost confidence in the future of the economic climate and are one by one leaving the country for what they consider are safer offshore destinations.

Failure to tackle the overall environment, beyond the IMF programme, will only waste what has emerged as a valuable opportunity to save Pakistan from economic destruction.

- The writer is a journalist based in Pakistan.