ISLAMABAD: The government might consider asking the International Monetary Fund (IMF) for an emergency loan to mitigate the damage caused by the recent floods. Initial assessment reports have claimed that the economic loss due to the catastrophic floods are estimated to be over Rs2.5 trillion.
According to a report by the Express Tribune, the IMF has recently released $1.17 billion in funds to the government of Pakistan as the country deals with a spiraling death toll and widespread destruction from floods. This money was originally part of a government bailout loan from 2019, but the final payments had been held up.
Millions have been displaced across the country. People have lost their livelihoods with hundreds of thousands of acres of crops destroyed and livestock perishing in the floodwaters. Roads and dams have been destroyed causing massive damage to the infrastructure. With the forecast of more floods, the situation remains dire.
It’s too early to calculate the economic cost of the devastation, but according to the government’s estimation, the country would be needing more than $10 billion to rebuild. A weak economy cannot bear such colossal losses. With millions of acres of crops lost, the country may also face acute food shortages in the coming months. It will make it extremely difficult for the government to contain the spiraling inflation which is already running over 40 percent.
In this situation, it would be a monumental challenge for the government to keep IMF conditionalities on track. There will be growing political pressure on the government both from the opposition and from within the ruling coalition itself to restore some of the subsidies, particularly on petroleum products and power tariffs that constitute the major part of the Fund’s stabilization programme.
In April 2020, IMF had approved $1.4 billion emergency financing under the Rapid Financing Instrument (RFI) to help the country deal with the aftermath of Covid-19 pandemic. This condition free window again seems the only available option for Pakistan as the other financing instruments of the IMF require prior actions or strong economic fundamentals.
