ISLAMABAD, Pakistan – Pakistan and the International Monetary Fund announced on Sunday that they have reached an agreement on a $ 6 billion bailout for the country's emaciated, debt-ridden economy, a prime minister rescue Imran Khan had refused before taking office since then reluctantly accepted.
Officials have described Pakistan's rising current account deficit – a measure of the imbalance between imports and exports – as an existential crisis. The country is heavily indebted to China and it is expected that the slowing economy will continue to shrink this year.
Pakistan owes the institution $ 5.8 billion from previous bailouts and has completed its previous programs only once.
"Pakistan is facing a challenging economic environment, with weak growth, increased inflation, high levels of debt and a weak external position," said Ernesto Ramirez Rigo, who led the IMF mission to Pakistan, said in a Press release Sunday. "The authorities recognize the need to tackle these challenges and tackle the huge informality in the economy, low human capital spending and poverty."
He added that the agreement requires the approval of the IMF. s executive board.
As part of the bailout package, Pakistan will have a market-driven exchange rate, meaning that the Pakistani rupee is likely to continue to be devalued. The interest rate is also raised.
The upcoming budget "aims for a primary deficit of 0.6 percent of GDP," said Ramirez Rigo, "supported by measures to mobilize tax revenues to eliminate exceptions, curtail special treatment and improve tax administration."
Pakistan Mr. Ramirez Rigo said the bailout would seek to improve public finances and reduce public debt "through fiscal and administrative reform" and "to ensure a more even and transparent distribution of the tax burden."
He added that a plan "Cost recovery in the energy sectors and in state-owned enterprises" would help to reduce the "quasi-fiscal deficit that strains scarce state resources." Mr Khan, who passed away last fall August was a vociferous critic of the IMF Als Op politician and during last year's election campaign, he vowed not to turn to him for support. But he was forced to break that promise – even though he promised a sweeping expansion of social programs that would contradict the global body's push for austerity measures.
Among other measures to streamline the belt, the rescue package should take the lead cuts in fuel subsidies, which burden the fighting population more. The government has already cut some subsidies and taken other measures. It was expected that the demand for a currency devaluation and a tightening of fiscal and monetary policy would increase. Such steps should continue to weigh on growth.
Mr. Khan's rivals have seized the opportunity to tie him to the pain the bailout will bring and refer to his reign as P.T.I.M.F. – a piece about P.T.I., the initials of Mr. Khan's political party, and an indication of the fact that senior members of his current economic team are working for I.M.F. in the past.
In the last stages of the rescue talks, Mr. Khan replaced almost all the leading members of this team, notably Asad Umar, a populist politician who was dismissed last month as Minister of Finance. Mr. Umar, who died on I.M.F. Talks said he was unwilling to hurt the Pakistani people in order to meet the Fund's requirements. He is also against the privatization of state-owned enterprises, which the I.M.F. often demands from countries receiving rescue packages.
The new Advisor to Finance Minister Abdul Hafeez Shaikh, who has the powers of the Minister of Finance, has worked for both the I.M.F. and the World Bank. Mr. Khan also recently appointed a former I.M.F. Employee, dr. Reza Baqir, as head of the central bank of Pakistan.