IMF deal fails to secure Pakistan’s financial stability


The Pakistan government is looking at a USD 25 billion debt repayment hurdle in the year starting July….reports Asian Lite News

Global credit rating agency has warned of continued threats to Pakistan’s financial sustainability. This comes despite the country receiving USD 3 billion lifeline from the International Monetary Fund (IMF). Khalsa Vox reported.

Moody’s Investors Service said Pakistan has USD 25 billion of repayments due in FY24. Pakistan last week signed a USD 3 billion loan programme with the IMF, following the revival of the USD 7 billion programme that was officially ending prematurely the same day.

As per Khalsa Vox, the programme is expected to make the required foreign exchange available to reopen imports, help listed companies to gradually ramp up the partially closed production, and reenergize economic activities in the country.

The IMF programme has also signalled other donor agencies and friendly countries to extend new financing to Islamabad as they pledged USD 9 billion at a Geneva meeting in January 2023.

The Pakistan government is looking at a USD 25 billion debt repayment hurdle in the year starting July.

Pakistan had to increase taxes, cut spending, and raise its primary interest rate to a historic peak in order to secure the initial agreement with the IMF.

The initial IMF agreement though welcomed by the markets, is still awaiting approval by the IMF Executive Board.

An analyst at Moody’s in Singapore, Grace Lim, expressed uncertainty about Pakistan’s ability to secure the complete IMF financing during the standby period.

“It is uncertain that the Pakistani government will be able to secure full USD 3 billion of IMF financing during the nine-month stand-by arrangement program,” Lim said.

The Pakistan government’s commitment to continually implement reforms will be tested as it goes into elections due by October 2023, she said, as per Khalsa Vox.

Photo taken on April 19, 2022 shows the IMF headquarters in Washington, D.C., the United States. (Photo by Ting Shen/Xinhua/IANS)

Foreign bailouts will not suffice

The International Monetary Fund (IMF) authorised a USD 3 billion bailout plan for Pakistan on July 12. Apprehensions and predictions of Pakistan’s debt default flooded the first part of this year. While the IMF agreement has prevented Pakistan from going into default, at least temporarily, it has also set off a vicious cycle that has happened a few dozen times before in the nation’s history, reported The Diplomat.

Saudi Arabia made a USD 2 billion deposit into the State Bank of Pakistan (SBP) after the IMF agreement, and the UAE had already committed to making a USD 1 billion contribution. In addition to the USD 600 million credit that was postponed last week, China rolled over a USD 2.4 billion loan on Thursday. The strategy is essentially the same: commitment to an IMF programme serves as the guarantee that lending states demand, saving Pakistan from a record-high 38 per cent inflation and a decade-low USD 3 billion in foreign reserves that barely cover a month’s worth of imports, as per The Diplomat.

The Diplomat is an international current-affairs magazine for the Asia-Pacific region, launched in 2002.

However, compared to recent events, this time around, the size of the political factors influencing the frequently regurgitated fiscal cycle is much different. An IMF plan is often accepted by a newly elected government, which then completes it in the first three years before being derailed by populist measures in the run-up to the following election. This process repeats itself every five years. Instead, the most recent IMF programme will be executed over the course of nine months by at least three separate administrations.

The Pakistan Democratic Movement (PDM) alliance, led by the Pakistan Muslim League-Nawaz (PML-N), which has consented to the IMF deal, is currently in power, but it will soon be replaced by a caretaker administration that will oversee the upcoming general elections, which are scheduled to take place sometime towards the end of 2023. This year’s IMF talks coincided with Pakistan’s election limbo as the government put off the planned elections until a military crackdown on the clear front-runner Pakistan Tehreek-e-Insaf (PTI) assured the ruling coalition of the army’s customary political scheming. The current bailout will be completed by that manufactured administration, and it will unavoidably negotiate a longer-term follow-up IMF plan, according to The Diplomat.

With Finance Minister Ishaq Dar’s name floating this week as a prospective caretaker prime minister, it is obvious that the incumbent administration is not even trying to maintain a pretence of electoral freedom and fairness and is instead pushing for a caretaker setup that is an extension of the current system. The fact that Pakistan even needs a caretaker government to transition between administrations confirms the mistrust surrounding all aspects of governance, which is hampered by the weakening of all institutions — with the exception, of course, of the all-powerful military. Pakistan’s economic blindspot continues to be the fact that no amount of IMF bailouts or foreign bailouts will be enough to keep the economy afloat without the nation undertaking a comprehensive structural makeover.

The military hegemony ensures that succeeding governments utilise Pakistan’s economy as a stage for political stunts rather than assuming control of it. The IMF criticised the most recent finance ministers Dar and Shaukat Tarin for the Extended Fund Facility (EFF) failure, which led to the need for the latest bailout, in its staff report. As has become custom, Tarin passed an expansive budget as the PTI regime was coming to an end, while Dar’s long-standing obsession with manipulating the exchange rate significantly hurt many different economic sectors by allowing multiple currency rates to thrive, led by an Af-Pak dollar cartel, reported The Diplomat.

The last ten months have seen a decline in Pakistan’s exports. Instead of aiming to make Pakistan an export-oriented economy, the government has chosen to restrict imports in order to address the deteriorating balance of payments crisis. The only way to guarantee this renovation and improvement of Pakistan’s overall investment climate is to address its most troubling flaw: its unstable security situation.

Despite the decline in terrorist attacks over the previous eight years, there is still a lot of unrest in the nation, which keeps investors away. Due to violent attacks directed against its projects, even Beijing has begun to reconsider the USD 62 billion China Pakistan Economic Corridor (CPEC), its largest-ever foreign investment. The Pakistani military’s own decades-old security strategy of supporting jihadists both domestically and regionally is at the basis of this instability.

This policy, in turn, is hinged on the state’s perpetual anti-India alignment, which continues to hit Pakistan’s economy hard, as per The Diplomat.

In spite of this, for the past seven decades, a combination of masochistic internal and regional power struggles has continuously destroyed Pakistan’s economy. The military leadership needs to realise that Pakistan needs a model that can maintain itself on a bedrock of grassroots democratisation since it can no longer run as an economy for hire or a business empire.

This calls for stability in the political and security spheres as well as the inclusion of all stakeholders within the framework of a shared national interest that is determined by empiricism rather than empty ideological rhetoric, The Diplomat reported. (ANI)

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