In July 2019, Pakistan started its macroeconomic adjustments under the IMF bailout program of USD $6 billion over three years to tackle its twin (current account and fiscal) deficit problem. In the past year, strict austerity measures attached to the IMF bailout package have contributed to contractions in the manufacturing industry, increasing unemployment, and inflation rising into the double digits. The spread of coronavirus has further delayed the recovery prospects of an ailing economy and emphasized gaps in the country’s health sector. In these challenging times instead of prioritizing government spending on the health sector and providing economic relief, the Pakistan Tehreek-e-Insaf (PTI) government’s recently released budget has set ambitious revenue targets and made cuts in the government expenditure to comply with the IMF’s austerity measures, which is likely to do little to alleviate economic pressures for the majority of Pakistan’s population.
The Economic Impact of the IMF Bailout
The severe austerity measures such as heavy taxation, rupee devaluation, and reduced government expenditure taken under the IMF program have helped reduce Pakistan’s current account and fiscal deficit but at a heavy cost of diminished economic growth. From July 2019 to March 2020, Pakistan’s current account deficit decreased by 73 percent to USD $2.8 billion, however this was mainly due to the massive depreciation of the rupee which led to a fall in import demand and a meager increase in exports—reducing the trade deficit by 31 percent. As expected, however, the GDP growth rate was projected at 2.4 percent for 2020 even before COVID-19 hit the country. Although in February 2020, Pakistan’s exports had shown a 3.6 percent growth when compared to the previous year, this sharply declined after COVID-19. Although the fiscal deficit fell from 5 percent to 3.8 percent of the GDP from July 2019 to March 2020, the government failed to meet the revenue targets for the fiscal year 2020 and public debt has increased to 88 percent of GDP.
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