Not a perfect remedy.

Byline: Nasir Jamal

For better or for worse, Pakistan has reached a $6 billion deal with the International Monetary Fund (IMF), though this time around, it is assumed, that the succour is arriving with a set of the sternest possible conditions.

The possibility looks bleak for the government to get the 'waivers of non-observance of performance criteria' under the new loan deal as was the case under the last programme that concluded in September 2016.

The question now is: will the people be able to ride out the storm?

Broadly speaking, the Extended Fund Facility (EEF) loan is likely to be packaged with extensive reforms in three areas: monetary, fiscal and structural reforms.

Implementation of these reforms will entail a complete liberalisation of the country's exchange rate regime and interest rate determination mechanism, significant tax hikes, a full fuel and energy cost recovery, subsidy and other government spending cuts, and so on to help address internal and external imbalances.

It will lead to a substantial drop in the value of the rupee, stoke massive inflation and push interest rates in the short to medium term. The cost of these adjustments for people is going to be very high.

Similar adjustments made after November 2016 in Egypt, for example, pushed the price inflation in that country to 33 per cent for most part of the first year of the $12 billion EFF programme, pushing many households into poverty.

The long-term solution to Pakistan's economic problem lies in strengthening its industrial sector that is part of the global value chain, and encouraging the production of capital and intermediary goods not only for the domestic industry but also the foreign market

The headline inflation in the African country is reported to have decelerated after more than two years of the programme. Yet the price growth continues to hover around 10-11pc.

There is every possibility that the prices in Pakistan will not rise as steeply. Still, the country's middle class households will see their real income fall significantly, cost of life rise sharply and their purchasing power erode rapidly as the present trend of job losses and pay cuts in the private sector is feared to get further entrenched over the next two years to three years on slowing economic growth.

Indeed, a very large number of families will find themselves impoverished by the time the programme concludes, denting the political support of the ruling PTI and its leader Imran Khan.


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