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International Monetary Fund Loan to Pakistan

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Muhammad Arif : Chairman Centre of Advisory Services for Islamic Banking and Finance (CAIF), Former Head of FSCD SBP, Former Head of Research ArifHabib Investments and Member IFSB Task Force for development of Islamic Money Market, Former Member of Access to Justice Fund Supreme Court of Pakistan

Pakistan entered a $6bn loan agreement with the IMF in 2019, but the country’s new finance minister said the targets attached to the loan designed to raise taxes and rein in government spending are ‘tough’.The IMF statement on Monday said that under latest proposal, the fund would disburse about $1 billion to Pakistan, bringing the total disbursement out of the $6 billion bailout to about $3 billion since 2019, according to the statement.

However, the positive development is Pakistan’s total debt to GDP has decreased to 83.50% of GDP on 30th June 2021 from 87.6% on 30th June 2020. Both domestic and external debts have depicted a downward trend from last year. The domestic debt declined to 55.1% of GDP from 56% last year.

Brunei is one of the countries with the lowest debt. It has a debt to GDP ratio of 2.46 percent among a population of 439,000 people, which makes it the world’s country with the lowest debt. Brunei is a very small country located in Southeast Asia.

  1. UK, France and Germany are also indebted countries.

The Japanese public debt is estimated to be approximately US$13.11 trillion US Dollars (1.4 quadrillion yen), or 266% of GDP, and is the highest of any developed nation. 45% of this debt is held by the Bank of Japan. With its phenomenal economic revival from the ashes of World War II, Japan was one of the first Asian countries to climb the value chain from cheap textiles to advanced manufacturing and services – which now account for the majority of Japan’s GDP and employment.

In addition to China and other countries, bearing the cost of failure of the ruling governments in Pakistan, the country has had to pay over yuan 26 billion in interest cost to China to repay a maturing debt in the fiscal year 2020-21.According to a government-linked think tank, there was 14.8 trillion yuan of hidden debt in 2020. Goldman’s calculation is based on an analysis of more than 2,000 Local Government Functional Classification Scheme (LGFVs’) statements of their interest-bearing debt, including bonds and bank loans.

The rise in household debt has been in line with rising house prices in almost every major economy in the world,” said the IIF’s Tiftik. Total sustainable debt issuance meanwhile has surpassed $800 billion year to date, the IIF said, with global issuance projected to reach $1.2 trillion in 2021

About ₨24.309 trillion is owed by the government to domestic creditors, and about ₨2.3 trillion is owed by Public Sector Enterprises (PSEs). Similarly, as of December 2020, external Debt of Pakistan is now around US$115.7 billion.

According to IMF The bank may purchase such securities in the secondary market, according to the draft.IMF says it plans to revive a $6 billion funding program for Pakistan.IMF chief says data-rigging scandal won’t hamper IMF-World Bank cooperation. India bonds likely to gain as govt refrains from adding to borrowing plan IMF’sis a country located at the intersection of Eastern Europe and Western Asia. If Georgieva wins some European backing as board debates her future. Georgiana’s future at IMF still unclear after marathon board meeting

The International Monetary Fund (IMF) has rejected Pakistan’s request to keep a door open for borrowing from the central bank amid the ongoing financial woes in the country.

The international financial institution based in Washington also did not agree on any meaningful accountability of the State Bank of Pakistan (SBP).

The Pakistani daily said the central bank’s profit would also not be transferred 100 per cent to the federal government until the SBP gets cover to back its monetary liabilities. According to the report, at least 20 per cent of the state bank’s profit will now remain in the central bank’s coffers until it gets the desired cover.

IMF turned down the Pakistan government’s proposal to allow it to take loans equal to 2 per cent of the gross domestic product (GDP) in a fiscal year. The IMF did not budge despite the government’s opinion that it was its constitutional right to take loans to finance its operations, the Tribune report said.

Although there is a ban on government borrowing from the state bank under the IMF program till September 2022, the government has now given up and agreed to permanently close this door through legislation, the report said.

“The bank shall not extend any direct credit to or guarantee any obligations of the government, or any government-owned entity or any other public entity,” said a draft of the bill approved in March this year.

The report added that the bank shall not purchase securities issued by the government or any government-owned entity or any other public entity in the primary market. The bank may purchase such securities in the secondary market, according to the draft.

According to the Tribune report, the ban on borrowing from the central bank has left the government at the mercy of commercial banks that have in recent weeks demanded an interest rate that is significantly higher than the key policy rate.

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