Pakistan and IMF Reach $7 Billion Dollar Bailout Deal, In Response to Economic Crisis
Pakistani citizens protesting against higher consumer prices, affecting their daily quality of life. AP Photo/K.M. Chaudary
On Sept. 25, the IMF reached a deal with Pakistan, securing the nation the seven billion dollars needed to pay its debts and stay afloat. The news was uplifting to the country that has an external debt of $130 billion, with $90 billion due over the next three years. The International Monetary Fund, the financial wing of the United Nations, has continuously lent out money over recent years to Pakistan as the nation struggles to pay back interest on decades-old debt. Pakistan has requested a staggering twenty-three bailouts. This request comes as the nation teetered on being unable to pay back its interest obligations, in effect defaulting.
In exchange for the seven billion dollars, six ministries and 150,000 jobs will be cut. Further, past IMF deals have mandated subsidy cuts for food and electricity. This comes as Pakistan battles high unemployment, a fallout of the education system, and political unrest. Pakistan also faces a high poverty rate with close to twenty-five million children out of school, and 95 million people living below the poverty line.
Critics of the IMF point out that this bailout deal seems to overlook the fact that previous loans provided to Pakistan have yet to be repaid. Pakistan’s oscillation between military and civilian rule has further compounded the debt that the nation continues to struggle with today. When General Zia-ul-Haq took control of the nation in a coup in 1978, Pakistan’s foreign debt stood at $12 billion. When his control ended in 1988, Pakistan’s debt hadballooned to an additional $30 billion. Historical trends of Pakistan’s governmental rule point to the fact that military governments rack up debt before democratic governments are forced to adopt policies in an attempt to collect interest payment, and run the risk of defaulting.
Shehbaz Sharif entering the 79th session of the U.N general assembly. AP Photo/Stefan Jeremiah
Today Pakistan’s ruling party finds itself in the same situation, struggling to uplift the national debt. After almost a full year of protests over the arrest and imprisonment of former Prime Minister Imran, Pakistan’s ruling coalition, embattled by rising inflation and unemployment, was teetering on the edge of upheaval.
Led by Shabazz Sharif- the brother of former prime minister Nawaz Sharif, Pakistan’s ruling coalition stood the chance of losing power if the nation defaulted yet again. The move also cements Pakistan’s close ties with China and Saudi Arabia, since both nations work together to provide financial assurances to the IMF.
The assurance by China comes as the two nations have strengthened their foreign relations, especially once the US drastically reduced engagement following the withdrawal of forces from Afghanistan. While details of the exact guarantees are unknown, an IMF chief reported that “the UAE, China, and the Kingdom of Saudi Arabia all provided significant financing assurances,” in an attempt to make this deal come to fruition.
The $7 billion agreement will likely stabilize the country in the near term, and give a measure of relief to its neighboring countries that a default crisis is averted. But the deal itself is unlikely to be a cure for Pakistan’s growing debt crisis. The question still remains as to whether in a few years time another bailout request will be made, as Pakistan fights pressures to stay afloat during this time of economic crisis.