Acknowledging that Pakistan needs more infrastructure development, the IMF’s chief economist Maurice Obstfeld recently cautioned: “It is important that the design of the projects… be solid and excessive debts which cannot be repaid are avoided.”
One implication of Islamabad approaching the IMF now is that Pakistan will likely have to be far more transparent about the lending terms of its CPEC projects than it has been so far. “This transparency may have positive implications in terms of generating public support for renegotiating some CPEC deals which are not necessarily beneficial for Pakistan,” said Afzal.
Difficult reforms await
Regardless of CPEC, there are a number of difficult measures Khan’s administration will have to take to pull Pakistan out of its economic malaise. Economists say the government needs to tackle tax evasion and broaden the tax base by removing tax loopholes and exemptions.
It has to privatize some loss-making and inefficient state-owned firms, which are acting as a major drag on the economy.
Reforming the product and labor markets, particularly the energy and agricultural sectors, will also have to be high on the agenda. Also, the Pakistani rupee, experts say, has to be fairly valued, flexible and market-determined.
If Khan’s administration manages to push through at least some of these measures, it could significantly improve Pakistan’s growth trajectory. “While a sharp slowdown in growth looks inevitable over the coming year, Pakistan’s longer-term prospects should improve if the IMF deal leads to a sharp fall in the country’s external vulnerabilities and an improvement in its business environment,” said Capital Economics’ expert Leather.