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Apr 15

Pakistan reaches agreement with the IMF

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Pakistani Finance Minister Asad Umar visited Washington DC this month to discuss with the IMF the details and terms of their thirteenth bailout since the late 1980's. This comes at a time where currently Pakistan's central bank has lowered interest rates due to the country's five year high inflation rate at 9.4%, in addition to its 35% decrease in the rupee exchange rate. Prime minister Khan recently has been taking aid from China in the form of loans, in support of its "One Belt, One Road" initiative, however the investments are far from their payout points. Recalling from class, Pakistan was under pressure by the Chinese to allow them to build seaports and economic zones, in exchange for cheap military goods and access to the ports once completed. However, due to the countries massing debt, even with a $10 billion rupee loan to ease currency reserves, utility services have been skyrocketing, as they have been subsidized by a government with little to no cash reserves. This means that hiked up interest rates for the banks, as well as high inflation in food and energy products. Despite trying to obtain growth for its economy, the IMF only predicts a 2.9% growth rate in 2019, short of Pakistan's goal of 6.2%. This relates to multiple classes from this block, particularly our lesson on the international monetary system. With the rupee decreasing in its exchange value due to its artificial increase in supply, we can see Pakistan attempt to stabilize and create economic growth through the increase in the money supply (with loans from the IMF and China) as well as a hike in the interest rate. This will hopefully incentivize consumers to save money in the bank, allowing for the currency reserves to increase. However, this is doubtful as the article describes the IMF bailout as inevitable due to Pakistan's weak economy.

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