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Pakistan awaits the IMF… again

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Cricket star-turned-politician Imran Khan, chairman of Pakistan Tehreek-e-Insaf (PTI), speaks after voting in the general election in Islamabad, 25 July 2018 (Photo: Reuters/Athit Perawongmetha).

In Brief

At the end of a two-week visit to Pakistan in November 2018, the leader of the International Monetary Fund (IMF) mission, Herald Finger, left Islamabad without the customary press conference that usually takes place after an IMF country visit. The press conference is an opportunity to give details of what was discussed during the visit and, in most cases, to announce the new IMF program that the government has agreed to.

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The absence of the press conference has given rise to at least two strands of speculation: that the discussions broke down completely and there is little more to say, or that they are still in progress with a recess for the seasonal holidays. Statements from the Pakistani government support the second of these two routes, with government spokespeople explaining that Pakistan’s requested bailout package would be presented to the IMF’s Executive Board when it meets in January 2019.

Fuelling speculation is the question of the size of the requested bailout. For months, most economists and government officials of both the previous and current administrations said that Pakistan had no real option but to turn to the IMF. Figures ranging from anywhere between US$8–12 billion were suggested for an IMF loan request. But the size of the loan discussed during the meetings remains undisclosed.

Pakistan’s Minister of Finance Asad Umar told parliament after the IMF team’s departure that the government ‘is neither in a hurry to sign the IMF package nor will it come under any pressure to take any decision which can burden the country’s economy and its people’.

A few days prior to the IMF’s arrival in Pakistan, and after his own visit to China, Umar stated that Pakistan’s ‘balance of payments crisis is over’ and that China was committed to providing short-term relief to the country. This followed an earlier claim by the Pakistani government that Saudi Arabia had agreed to grant US$6 billion in assistance during Prime Minister Imran Khan’s October visit to the country. On his return to Pakistan, Khan stated that ‘now the government won’t need much from the IMF’.

So it’s difficult to say where things really stand. There is no denying that Pakistan needed to go to the IMF and that the request was bound to be twice as large as Pakistan’s last IMF loan of US$6.6 billion in 2013. Yet after taking office in August 2018 the Khan government promised to seek the help of ‘friendly countries’ — mainly Saudi Arabia, China and the United Arab Emirates — rather than the IMF to bridge the country’s financial gap. While some promises have been made for bilateral assistance, only US$1 billion has actually been received by the Pakistani government, leaving a serious shortfall that will inevitably need to be filled by IMF assistance.

According to media reports, the negotiations between the IMF and the Pakistani government were said to have been ‘80 per cent’ in agreement with ‘20 per cent’ of the framework awaiting finalisation. Among the issues reportedly discussed, a few contentious points stand out.

The IMF is insisting on an upwards revision of government revenue collection of 360 billion Pakistani rupees (US$2.6 billion) — an increase in the annual fiscal target by 8 per cent over the next seven months. Pakistan is resisting this request since it feels that new taxes or a cut in expenditure with rising inflation would add a further burden on the ‘common man’.

The IMF also wants to know the details of Chinese loans made to Pakistan for the China–Pakistan Economic Corridor, which the Khan government is reluctant to provide. There is concern, notably in the United States, that Pakistan’s IMF loans may go towards paying off debt owed to Beijing.

Despite a devaluation of the Pakistani rupee of 27 per cent in the last year, the IMF is requesting further adjustments. But the Khan government is hesitant since one consequence of this devaluation has been the country’s highest inflation rate in four years.

The IMF is reportedly also insisting that the existing fiscal federalism arrangement — where a large amount of revenue collected by the state is passed on to the four provinces — be rethought. The four provinces acquired greater policymaking autonomy and share of the national budget under a constitutional amendment in 2010, which has affected federal income and expenditures.

Pakistan is facing its highest-ever current account deficit of US$18 billion in the last fiscal year, reducing the country’s foreign currency reserves to just two months’ worth of imports. This impending trouble initiated Pakistan’s decision to ask ‘friendly countries’ for help, but it is the IMF that will play the most important role in determining the country’s financial and economic future in the next few years.

What conditions the IMF will impose and the Pakistani government must accept remain a mystery. In the meantime, Pakistan’s inflation rate rises as its forecasted GDP growth falls. Despite its bravado, the Pakistani government continues to wait for the IMF.

S Akbar Zaidi is a political economist based in Karachi, Pakistan. He is also a professor at Columbia University, New York, where he teaches one semester a year. His most recent book Issues in Pakistan’s Economy: A Political Economy Perspective was published by Oxford University Press in 2015. His next book New Perspectives on Pakistan’s Political Economy: State, Class and Social Change, a co-edited volume, will be published by Cambridge University Press in 2019. 

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