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Asia

IMF loan to Bail Out Pakistan

The International Monetary Fund (IMF) has approved the long-awaited loan of 7.6 billion dollars for Pakistan. The 23-month credit line will "support the country's economic stabilization program," the IMF said in a statement.

The financial crisis had forced Pakistan to call upon the IMF for help

The financial crisis had forced Pakistan to call upon the IMF for help

The 7.6 billion dollars loan is the first IMF – led rescue in Asia since the beginning of the current global financial crisis. An IMF statement said that about 3 billion dollars would be immediately available to Pakistan and the remainder would be allocated after quarterly reviews.

Financial instability in Pakistan

Political instability and the negative economic fallout of the war on terror had combined to create a financial crisis in the country, which also caused many countries to worry about the future of Pakistan. As it was unable to mobilize bilateral support from friendly countries, the government saw no option but to request the International Monetary Fund for urgent financial assistance. The IMF loans come with certain conditions including cuts in government spending and a raise in interest rates to contain inflation. Analyst Mubashir Akram says regardless of the conditions, the cash injection is likely to help in the short term.

‘’None of the international financial institutions' conditions are anti-people. It has been the government that uses the money in a certain way; therefore it is extremely crucial for Pakistan's short term stabilisation. If the Pakistan government had been capable enough, it should have been able to generate this money on its own,’’ says Akram.

Yet, economists are still skeptical as to whether the IMF money can really take the country out of the financial crisis. Analyst Dr. Farrukh Saleem says stabilization of the economy is Pakistan’s internal matter. ‘’No loan from outside, either from a bilateral or from a multi-lateral lender, is going to stabilize Pakistan,’’ says Dr. Saleem.

No substitute for reforms

Pakistan's actual foreign exchange reserves are currently down to less than two billion dollars. The government has drastically restricted trading at the main Karachi stock exchange to avoid a crash. Analysts say the IMF cash may help the nation overcome a crisis of confidence, improve its debt rating, and revive investor's confidence.

Dr. Saleem, however, emphasizes that the long-term remedy to Pakistan's economic crisis lies in structural reforms. ‘’We would have to undertake reforms in the fiscal areas and in the trading patterns. I don't think that any of these loans is a recipe for success, or a substitute for actual reforms,’’ he says.

Most analysts agree. They say the IMF rescue plan offers an opportunity to force Pakistan to fix entrenched structural distortions in its economy. They also point out, however, that with the war on terror directly affecting the investment climate, such reforms will be very difficult to implement.

  • Date 25.11.2008
  • Author Imtiaz Gul (Islamabad) 25/11/08
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  • Permalink http://p.dw.com/p/LrvA
  • Date 25.11.2008
  • Author Imtiaz Gul (Islamabad) 25/11/08
  • Print Print this page
  • Permalink http://p.dw.com/p/LrvA