IMF board okays $6 billion loan package for Pakistan

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The International Monetary Fund Executive board approved a three-year, $6 billion loan package for Pakistan on Wednesday to rein in mounting debts and stave off a looming balance of payments crisis, in exchange for tough austerity measures.

Board approval will allow immediate disbursement of around $1 billion, with the remainder to be phased in over the period of the programme, subject to quarterly review, the IMF said, highlighting the need for Pakistan to agree to tough conditions for the coming three years.

Just as important as the package itself, approval will also unlock an additional $38 billion from Pakistan’s international partners over the programme period.

“Pakistan is facing significant economic challenges on the back of large fiscal and financial needs and weak and unbalanced growth,” IMF First Deputy Managing Director David Lipton said in a statement.

The programme will require “decisive fiscal consolidation” and a multi-year plan to strengthen Pakistan’s notoriously weak tax system as well as large scale reforms that are likely to pile pressure on the government of Prime Minister Imran Khan.

Khan came to power last August, inheriting an economy plagued with problems. But he was initially deeply reluctant to turn to the IMF, which has provided more than 20 bailout packages to Pakistan over the decades.

However, despite securing billions of dollars in loans from friendly countries including China, Saudi Arabia and the United Arab Emirates, mounting economic headwinds forced his government to turn to the fund.

With foreign exchange reserves shrinking to only $7.3 billion, less than the equivalent of two months’ worth of imports, and the budget deficit set to top 7% of gross domestic product this year, Pakistan faces tough economic medicine to tackle problems that have been years in the making.

Dominated by agriculture and textiles and with a large informal sector that pays no tax, the economy has struggled to develop export industries and successive governments have spent heavily to defend an overvalued exchange rate.

The $60 billion China Pakistan Economic Corridor, launched in 2015, had promised a new beginning. Its infrastructure projects were intended to become a new foundation for growth, but they also required heavy imports of capital equipment, widening the trade deficit.

According to IMF forecasts, real GDP growth is expected to slow to 2.4% in the current fiscal year to June 2020, down from 3.3% in the year just ended.

The IMF’s terms call for a “flexible market-determined exchange rate” to help correct an unsustainable current account deficit and make industries more competitive, while trying to expand the tax base in a country where only 1% of the 208 million population file returns.

The central bank, which controls the currency, has hiked interest rates to 12.25% and slashed the rupee to historic lows against the dollar, but this has piled more pressure on households facing inflation running at almost 9%.

In addition, in a bid to cut public debt, the government has set ambitious tax and revenue plans, despite failing to meet the previous year’s targets and hiked prices in the creaking energy sector, where mounting debt backlogs have acted as a growing drain on government resources.

The programme also calls for expanded social spending to protect the most vulnerable.

However, the combined package of belt-tightening measures has prompted anger from opposition parties, which say the government hesitated too long before turning to the fund. They have pledged a campaign of protests this month.

Reuters

Singapore Reporter/s

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Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

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  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.