Pakistan’s Loan Program with the International Monetary Funds (IMF) ended in August last year after the final payment of $102 million was cleared. The current situation of Pakistan’s economy looks as if the government might have to ask IMF for yet another loan, despite the fact that many analysts think that taking a loan from IMF is not a feasible option for Pakistan right now.
We took the liberty to pen down all the reasons why seeking a loan from IMF might not be as bad as it appears to a lot of people, including many experts in the field.
IMF provides cheaper financing options to countries and its loan program is cheaper than the other alternatives that are available right now. As of October 19, 2017, the rate of borrowing from IMF stands only at 1.589%, compared to the 7% coupon rate on Pakistan’s Investment bond.
Similarly, IMF also offers its loan program to borrowers that further reduces the cost of borrowing for them. If the program is adopted, the cost goes down and the savings increase for the countries. IMF takes reserves from member countries that have a strong economy and provides the loan to other needy countries.
Furthermore, IMF is often regarded as being very strict in its policies involving lending to member countries. Because the organization has to ensure that the loan it provides can be recovered, thereby reducing the risk of bad debts, some of the conditions that IMF asks of countries include privatization of loss-making state entities.
Pakistan’s state entities like Railways, Steel Mills, and PIA have suffered losses of Rs. 705 billion in the last three years and thus it is required that they are converted to profit-making entities through privatization. The conditions imposed by IMF, if followed, can lead to success and improve the economic conditions of the country, just like Korea, Russia, and Brazil did in the past.
All these countries borrowed from IMF to bring a positive change in their economy which shows that things will change if the loan agreement with IMF is implemented properly. But the problem with Pakistan is that things are not implemented properly and this the reason why the last loan agreement did not turn around things for the country.
IMF provides advisory services to countries by charging a consultancy fee through which countries get a helping hand from world’s renowned and most acclaimed economists and analysts. Thus if Pakistan has to turn things around, borrowing from IMF looks like the best possible option right now.