[Current Affairs] February 17, 2021 Top Pakistan Current Affairs for PPSC Test Preparation

2. IMF and Pakistan revive delayed bailout program

What’s going on? Remember the International Monetary Fund’s (IMFs) $6 billion bailout program for Pakistan? IMF staff and Pakistani authorities agreed on a new package of measures that aim to support the economy, ensure appropriate debt management, and improve structural reforms.

The details: The IMF funds have been on hold since last year, since Prime Minister (PM) Imran Khan initially said ‘no’ to increasing electricity prices and adding more taxes to raise tax revenue (i.e. income the govt makes through taxation). Now, the govt has reportedly agreed to pursue those fiscal measures between February and May this year. In fact, the govt already raised energy prices. These rising prices are coming at a time when inflation in Pakistan is on the higher side (P.S. high inflation indicates an increase in general prices).

The context: In 2019, Pakistan requested funds from the IMF’s Extended Fund Facility (EFF) to help stabilize the economy, which was struggling with a big current account deficit and low foreign exchange reserves. Pakistan eventually reached out to the IMF months after PM Khan’s newly elected govt refused to ask for a financial bailout. As a part of the three year loan program, the IMF is working with Pakistan to implement economic reforms in the country.

In case you need a quick economics refresher, and don’t have time to Google what these terms mean:

• Current Account Deficit: When a country spends more money on what it imports than what it exports, meaning, more money is leaving the country, instead of coming into the country.

• Foreign Exchange Reserves: Central banks hold foreign exchange reserves (i.e. any foreign money). If a country has low foreign reserves, and there is excess demand for foreign currency (e.g. dollars), then the price of the foreign currency could go up, causing the country’s own currency to decrease in value. Basically, when a country’s currency is low in value, that country’s goods become cheaper. At the same time, a devalued currency makes foreign goods more expensive for domestic residents to purchase, which sucks if you are a person or business that relies on imported products. Also, central banks use foreign reserves to meet external payment obligations, like paying debts.

Looking ahead: The IMF Executive Board still needs to do a final review and give its stamp of approval before releasing $500 million in IMF Funds to Pakistan – a segment of the total $6 billion. Finance Minister, Dr Abdul Hafeez Shaikh, said this is “a good development for Pakistan.”

The bottom line: It was unclear where Pakistan and the IMF stood regarding the bailout program. The latest agreement between Pakistan and the IMF reportedly ended a long period of uncertainty.