Pakistan’s balance of payment crisis has emerged so quickly that many experts were surprised at it because just few months ago that was not the impression conveyed by the previous government. The previous government was so confident about its economic performance that it abandoned the IMF programme in the middle citing stringency attached to its conditionalities. The economic czars of the previous government never alluded to the intensity of balance of payment imbalance as portrayed by the present government. It has come as a surprise to many financial experts who were not projecting such a scenario.
The lackadaisical approach exhibited by the present government about its asking IMF for a bailout also strengthens the doubts that the actual situation was not as urgent as was shown. The government took many months to formally request the IMF for a bailout and then its parleys with the IMF team ended inconclusively. The cavalier attitude of the finance minister appears to be more populist than substantial and the whole exercise smacks of a public relations deviation. The obvious result was that Islamabad showed reluctance to accept Fund’s conditions for bailout package.
Pakistan last month finally decided to approach IMF for bailout package as it needed $12 billion during current fiscal year to meet external financing. In the meanwhile Pakistan succeeded in getting $6 billion package from Saudi Arabia comprising $3 billion defer oil payments facility and $3 billion to be placed in State Bank of Pakistan account. Pakistan also contacted China and the UAE for similar assistance but nothing substantial came out of it.
However, an International Monetary Fund mission led by Harald Finger visited Islamabad from November 7-20 to initiate discussions on a financial arrangement with the IMF requested by the Pakistani authorities to support their economic reforms programme. Despite the clamour about financial emergency, Pakistan and IMF could not bridge the gulf on issues of increase in electricity prices, depreciation of currency, hike in interest rate and imposition of new taxes. The government must have been aware that IMF would ask for taking these steps but it appears that finance minister was prepared for resisting conditionalities. The government is now publicly stating that it could not take anti-people decisions despite having taken many steps before entering into negotiations with the IMF.
The government’s response to IMF demands to increase the power tariff by 20 percent to control the soaring circular debt of the country along with fresh revenue generation measures worth Rs.100 billion to Rs.150 billion, was that it had already enhanced the power tariff and gas prices. The Fund has also asked to depreciate Pakistani rupee but again that has already been depreciated. Another demand to increase interest rate was also met before its formal request as State Bank hiked interest rate to its highest in many years.
It is a clever policy though quite cheeky as its contours were already widely known. The government’s stance that it will take administrative measures to control power theft and reduce line losses to check increasing circular debt of the country is a routine measure and does not mean anything specific. The government has already presented a mini-budget that resulted in a disastrous round of galloping inflation.
Pakistan-IMF negotiations appear to be cursory as is clear by the generalities expressed in their respective declarations. The IMF accordingly declared that it was engaged in productive discussions with Pakistan on economic policies and reforms that could be supported by a financial arrangement with the IMF. In this context, there has been broad agreement on the need for a comprehensive agenda of reforms and policy actions aimed at reducing the fiscal and current account deficits, bolstering international reserves, strengthening social protection, enhancing governance and transparency, and laying the foundations for a sustainable job-creating growth path.
The government also took a general but vague stance by mentioning that substantive progress was achieved towards developing a common understanding on the policy and structural reforms framework for the prospective IMF programme, including fiscal and monetary measures, corrective interventions for balance of payments sustainability, pro-poor spending, governance and development of a business-friendly environment.
It was also reported that the finance minister briefed the prime minister about the efforts to settle bilateral affairs with the IMF in such a way that would have positive results on the economy and which could not put burden on the people. The cat finally came out of the bag when the finance minister reassured the prime minister that the IMF programme had no immediate pressure on Pakistan’s economy, adding that understanding Pakistan’s priorities by the IMF delegation was an encouraging step.
So this is not a real stalemate as projected by authorities. Apparently, the bailout negotiations with the International Monetary Fund have been extended until lender’s board meeting on January 15, 2019. The whole exercise ended with a whimper and the purported clouds of financial insolvency disappeared as quickly as they were made to gather.
Abdul Basit works in finance and industry and is well versed in commercial affairs