Portugal’s successful loan management: lessons for Pakistan

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The State Bank of Pakistan (SBP) has received $2.75 billion from the International Monetary Fund (IMF) as part of Special Drawing Rights (SDR) allocation announced by the fund recently. Pakistan entered a new $6bn loan agreement with the IMF in 2019, while the country has been a constant borrower of IMF since 1950s. The story of Pakistan’s relation with IMF can be best described as taking one step forward and two steps back. The country has been signing lending agreements with the IMF for so long, however, successful loan management and repayment are still inadequate. In Pakistan, it has now become a custom that every successive government declares economic bankruptcy and starts blame game against the economic policies of the previous governments. This is the very reason that every new government which comes to power moves towards IMF, World Bank, Asian development bank and other developed states for bailout packages. During the time of economic crisis and international fiscal debts, IMF granted loans to the state. However, there is no free lunch in this world so the organization also seeks a robust action plan to deal with the crisis and demand for repayment with certain imposed condition. Therefore, the complete dependence on loans and lending institutions has never been a harmless solution of a nation’s problems. The repayment of loans and complying by the conditions imposed by lenders is not a piece of cake. The delay in repayment entombed the states in IMF’s debt trap and the Same is the case with Pakistan.  Once a Karachi-based economist Shahid Hasan Siddiqui told Anadolu Agency that, the basic focus of the program initially is stabilization and will move towards growth later. Due to this mindset, Pakistan is unable to manage the economic policies and got entrapped in the cobweb of IMF. If we talk about the successful management and repayment of loans, Portugal is an important example.  The Portugal lending case with IMF started in the year 2011 due to the economic and financial crisis of Portugal. The most important factor behind Portugal’s financial crisis was uncontrolled spending and the increased public and private debts, which led the state towards taking financial package. The Portugal government dealt with the crisis successfully and paved their way to accomplish the pre-crisis situation of 2008. The state convinced the IMF and European Union to have trust in them and their ability to deal with crisis. Thereby, through implementing the conditions of IMF they dealt with the crisis successfully and without blaming previous governments. Portugal primarily focused on its tourist industry. The boom in their tourist industry and economic policies led them to manage in-time repayments of loan.  Portugal approached IMF in 2011 while Pakistan has been doing it since 1950’s. Unlike Portugal, Pakistan was unable to pay its debts and loans in time. This increased the burden on the state’s economy. Pakistan must learn a lesson from Portugal’s crisis management. The government must deal with the economic issues rationally and should strictly abide by the conditions imposed by IMF to manage its repayment timely. However, just like Portugal, Pakistan has now started paying attention towards its tourist industry which has been neglected by most of the previous governments. This is a brave step by the incumbent Government of Pakistan. on the other hand, due to corruption and lack of transparency, the tax collection and revenue assortment remains a prominent issue in Pakistan. The current government should now also pay more and more attention to tax collection and raise the country’s revenues to pay international bills. Further, there is a need to focus on domestic production and improve the macro and micro-economies of the state. But these steps only put a burden on the economy of the state. The state must adopt a rational policy to deal with the loans and gain the trust of the IMF and its sponsor partners.

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