Government plans to take emergency loan from IMF to mitigate flood damage


ISLAMABAD: The government may consider asking the International Monetary Fund (IMF) for an emergency loan to mitigate the damage caused by the recent floods. Initial assessment reports claimed that economic losses from catastrophic floods are estimated at over Rs 2.5 trillion.

According to a report from Grandstand Express, the IMF recently released $1.17 billion in funds to the Pakistani government as the country faces rising death tolls and widespread destruction floods. The money was originally part of a government bailout loan from 2019, but final payments had been delayed.

Millions of people have been displaced across the country. People lost their livelihoods with hundreds of thousands of acres of crops destroyed and livestock perishing in the floodwaters. Roads and dams were destroyed causing massive damage to infrastructure. With the forecast of further flooding, the situation remains dire.

It is too early to calculate the economic cost of the devastation, but according to the government’s estimate, the country would need more than 10 billion dollars to rebuild. A weak economy cannot bear such colossal losses. With millions of acres of crops lost, the country could also face severe food shortages in the coming months. It will be extremely difficult for the government to contain the spiral of inflation which is already over 40%.

In this situation, it would be a monumental challenge for the government to keep IMF conditionalities on track. There will be increasing political pressure on the government from both the opposition and the ruling coalition itself to restore some of the subsidies, especially on petroleum products and electricity tariffs which make up the bulk of of the Fund’s stabilization program.

In April 2020, the IMF approved $1.4 billion in emergency financing under the Rapid Financing Instrument (RFI) to help the country cope with the consequences of the Covid-19 pandemic. This unconditional window again appears to be the only option available to Pakistan as other IMF financing instruments require prior actions or strong economic fundamentals.


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