The International Monetary Fund (IMF) is expected to approve an aid package for Pakistan making it the first country to succumb to the IMF in the current economic crunch. A lot is riding on whether the Fund’s policy conditions help or hurt the economy and early signs are mixed, says the Wall Street Journal.
The $7.6 billion loan package is intended to address a severe balance of payments shortfall, as import costs far outpace export values and financing the gap depletes reserves, and “restore the confidence of investors by addressing macroeconomic imbalances through a tightening of fiscal and monetary policies.” An interest-rate hike is part of the deal, as well as fiscal austerity and tax-base “broadening.”
Some of these are measures Pakistan would have taken anyway. But with inflation in the double digits, the currency falling roughly 25 per cent since January 2008 and capital fleeing, Pakistan has few policy options, says the Journal:
Tax reform can be good if it results in everyone paying a little, but with a parlous economy, now is a bad time for the government to attempt this. Meanwhile, any move to increase revenue as a proportion of GDP essentially amounts to a tax increase; coupled with steep interest rates, this is a recipe for low or nonexistent growth, says the Journal.
Source: Editorial, Pakistan’s Bailout, Wall Street Journal, November 18, 2008.
For text: http://online.wsj.com/article/SB122703168938638015.html
For more on International Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=26
FMF Policy Bulletin/ 25 November 2008
