An IMF team left Pakistan on Friday after crisis talks with the government failed to deliver a deal on financial aid that would help the South Asian country avert economic collapse.
After months of deadlock, the International Monetary Fund delegation arrived last week for last-ditch talks with a government wary of enforcing bailout conditions during an election year.
Pakistan’s economy is in shambles, suffering from a balance-of-payments crisis while attempting to service massive amounts of external debt amid political turmoil and deteriorating security.
Inflation has skyrocketed, the rupee has plummeted, and the country can no longer afford imports, resulting in a significant decline in industry.
“During the mission, significant progress was made on policy measures to address domestic and external imbalances,” the IMF said in a statement.
“Virtual discussions will continue in the coming days to finalize the details of these policies’ implementation.”
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The IMF is demanding that the nuclear-armed nation increase its pitifully low tax base, eliminate tax breaks for the export sector, and raise artificially low petrol, electricity and gas prices meant to help low-income families.
Prime Minister Shehbaz Sharif previously called the conditions for the $1.2 billion loan instalment “beyond imagination”.
Finance Minister Ishaq Dar addressed the nation after the IMF team left the country on Friday morning, saying talks had “concluded successfully” and that a draft memorandum on broadly agreed policies had been shared by the lender with the government.
He said petrol prices would rise by roughly four percent and additional taxes would be imposed, without giving further details.
Economic analyst Abid Hasan, a former adviser to the World Bank, said “there will be disappointment in the business community”.
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Pakistan’s economy has been crippled by years of financial mismanagement and political instability, exacerbated by a global energy crisis and devastating floods.
The government bowed to IMF pressure in mid-January after months of holding out in search of alternatives, loosening control of the rupee to curb a rampant black market for dollars. There was also a 16 percent increase in petrol prices by the authorities.
Trying to save money, 65-year-old Rana Sadiq sold his car and commuted by motorbike.
From a market in Islamabad, he told AFP that gas bills, electricity bills, petrol prices, fruit and vegetable prices have all doubled.
On Thursday, the central bank released data saying its foreign exchange reserves had plunged by $170 million in a week, standing at just $2.9 billion as of last Friday.
Since January, the world’s fifth most populous nation is no longer issuing letters of credit, except for essential food and medicine, causing a backlog of raw material imports the country can no longer afford.
The logjam coupled with the rupee devaluation has sparked a major decline in manufacturing, including textiles and steel, and building projects.
“This situation has triggered fears the construction industry will close down very soon, plunging thousands of labourers into unemployment,” Syed Ashfaq Hussain, head of the Constructors Association of Pakistan, told AFP.
While the IMF cash injection will not be enough to rescue Pakistan on its own, the government hopes it will boost confidence and open the doors for friendly nations such as Saudi Arabia, China and the UAE to offer further loans.
“We will get temporary relief but it’s not a permanent solution for the economy. More reforms are needed at the government level,” a senior government official told AFP.
Pakistan has brokered and broken more than a dozen IMF deals in recent decades as parties renege on agreements that hurt their political survival.
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