Pakistan: IMF Reaches Staff Level Agreement

International Monetary Fund (IMF) staff and the Pakistani authorities reached a staff-level agreement on the first review under Pakistan’s Stand-By Arrangement (SBA), subject to approval by the IMF’s Executive Board. Upon approval, Pakistan will have access to SDR 528 million (around US$700 million).

The agreement supports the authorities’ commitment to advance the planned fiscal consolidation, accelerate cost-reducing reforms in the energy sector, complete the return to a market-determined exchange rate, and pursue state-owned enterprise and governance reforms to attract investment and support job creation, while continuing to strengthen social assistance.

An IMF team, led by Nathan Porter, visited Islamabad from November 2-15, 2023, to hold discussions on the first review of Pakistan’s economic program supported by an IMF Stand-By Arrangement (SBA). At the conclusion of the discussions, Porter issued the following statement:

“The IMF team has reached a staff-level agreement (SLA) with the Pakistani authorities on the first review of their stabilization program supported by the IMF’s US$3 billion (SDR2,250 million) SBA. The agreement is subject to approval of the IMF’s Executive Board. Upon approval around US$700 million (SDR 528 million) will become available bringing total disbursements under the program to almost US$1.9 billion.

“Anchored by the stabilization policies under the SBA, a nascent recovery is underway, buoyed by international partners’ support and signs of improved confidence. The steadfast execution of the FY24 budget, continued adjustment of energy prices, and renewed flows into the foreign exchange (FX) market have lessened fiscal and external pressures. Inflation is expected to decline over the coming months amid receding supply constraints and modest demand. However, Pakistan remains susceptible to significant external risks, including the intensification of geopolitical tensions, resurgent commodity prices, and the further tightening in global financial conditions. Efforts to build resilience need to continue.

“In this regard, strengthening macroeconomic sustainability and laying the conditions for balanced growth are key priorities under the SBA. The authorities’ policy priorities include:

Continued fiscal consolidation to reduce public debt, while protecting development needs. The authorities are determined to achieve a primary surplus of at least 0.4 percent of GDP in FY24, underpinned by federal and provincial government spending restraint and improved revenue performance supported, if necessary, by contingent measures. The authorities are building capacity to expand the tax base and raise revenue mobilization and are committed to improving the quality of public investment and spending.

Strengthening the social safety net to better protect the vulnerable. The authorities will continue the timely disbursements for social protection under BISP’s budget allocation—which are about a third higher than in FY23. This will allow for the expansion of the Unconditional Cash Transfers (UCT) Kafaalat program to 9.3 million families this fiscal year, with an annual inflation adjustment of the stipend. Looking forward, the authorities are seeking to improve the UCT Kafaalat generosity level and to increase enrollment into the Conditional Cash Transfers programs supporting children’s education and health.

Further reforms to reduce costs in the energy sector and restore its viability. With the combined circular debt (CD) across power and gas sectors exceeding 4% of GDP, immediate action was critical. While protecting vulnerable consumers, the authorities implemented power tariff adjustments that were pending since July 2023 and increased gas prices after a long time, effective November 01, 2023. While these increases were substantial, they were necessary to avoid further arrears that threatened the viability of these sectors and the provision of critical energy supplies. The authorities are also moving to tackle cost-side pressures, including bringing private sector participation to DISCOs, institutionalizing recovery and anti-theft actions, improving PPA terms, and reducing the incentives for captive power.

Returning to a market-determined exchange rate and rebuilding FX reserves. While inflows following increased regulatory and law enforcement helped normalize import and FX payments and rebuild reserves, the authorities recognize that the rupee must remain market-determined to sustainably alleviate external pressures and rebuild reserves. To support this, they plan to strengthen the transparency and efficiency of the FX market and to refrain from administrative actions to influence the rupee.

Proactive monetary policy to lower inflation toward its target. With appropriately tight monetary policy, inflation should steadily decline and the authorities stand ready to respond resolutely if near-term price pressures reemerge, including due to second-round effects on core inflation or renewed exchange rate depreciation.

Building financial sector resilience. Continued vigilance is warranted to safeguard the soundness of the banking system. Priorities include addressing undercapitalized financial institutions, ensuring foreign exchange exposures within regulatory limits, and aligning bank resolution and crisis management frameworks with best practice.

Continuing state-owned enterprise and governance reforms to improve the business environment, investment, and job creation. Following passage of the State-Owned Enterprises (SoE) law, the authorities are moving forward with their SoE policy and implementation of their triage plan, including the privatization of select SoEs. High governance and transparency standards will apply to the management of assets under the ownership of the newly created Sovereign Wealth Fund (SWF) and the operations of the SIFC. To further strengthen governance, the authorities will ensure public access to asset declarations from Cabinet members and a task force, with participation from independent experts, will complete a comprehensive review of the anticorruption framework.

Deepening cooperation with international partners. The authorities have accelerated the engagement with multilateral and official bilateral partners. Timely disbursement of committed external support remains critical to support the authorities’ policy and reform efforts.

“The IMF team thanks the Pakistani authorities, private sector, and development partners for fruitful discussions and cooperation throughout this mission.”

 

Pakistani Prime Minister meets IMF chief

Pakistani Prime Minister Shehbaz Sharif on Thursday briefed International Monetary Fund's managing director Kristalina Georgieva on the economic outlook of the cash-strapped South Asian nation, hoping for the release of critical stalled funds.

The meeting on the sidelines of the Global Financing Summit in Paris came with about a week left before the IMF's Extended Fund Facility (EFF) agreed in 2019 expires on June 30, 2023.

Under the US$6.5 billion EFF's 9th review, concluded earlier this year, Pakistan has been trying to secure US$1.1 billion of funding that has been stalled since November 2022.

"The Prime Minister expressed the hope that the funds allocated under the IMF's EFF would be released as soon as possible," said a statement from his office.

It said Sharif outlined the steps Pakistan had taken for economic growth and stability, adding that his country had already completed all the IMF's conditions to meet the 9th review.

With central bank foreign exchange reserves barely enough to cover one month of controlled imports, Pakistan is facing an acute balance of payment crisis, which analysts say could spiral into a debt default if the IMF money doesn't come through.

The IMF funding is critical to unlock other bilateral and multilateral financing.

Islamabad has expressed its frustration over the delay. It argues it has met all the painful fiscal measures the lender requested.

The IMF still has concerns over Pakistan's external financing gap, foreign exchange market operations and the budget presented earlier this month which it said violated the program's objective.

Pakistan has defended the budget, but at the same time offered to review it in any further talks with the IMF.

  

Pakistan-IMF relations getting too complicated

The IMF program is in limbo, foreign exchange reserves of Pakistan are at the lowest level, economy is deteriorating fast and, worst of all, political violence is touching new highs. I have picked up these lines from a daily report of Chase Securities, one of Pakistan’s leading brokerage houses.  

If there is a relationship status of Pakistan and IMF right now, one would say “It’s Complicated”. Since the beginning of the Political turmoil and law and order situation after it, analysts believe that the hopes to get an IMF Program are low.

Politics had always remained volatile in the history of Pakistan and also during the previous IMF programs and reviews.

In 1993, President dismissed Prime Minister and dissolved assemblies after which, a legal battle began in courts resulting in restoration of Government by the Supreme Court and then elections were held in October 1993. One month before the elections and during the political turmoil, Pakistan signed an IMF program in September 1993.

In 1996, PPP Government was dismissed before completion of term and the brother of the then Prime Minister Benazir Bhutto was assassinated leading to ethnic violence. Elections were held in early 1997 and Pakistan signed the IMF program same year.

In 2000, coup had happened and the then Prime Minister was imprisoned for life. Economy had crashed and reserves were less than USS1 billion leading the country to sign the IMF program same year.

IMF program is more to do with how the country plan to manage its economy, implement the reforms and achieve the program targets.

However, to do so, political stability is of high importance and it is still time we get the house in order before it’s too late.

 

IMF flags debt restructuring hurdles

There are some disagreements over restructuring debt for distressed economies, the chief of the International Monetary Fund said on Saturday on the sidelines of a G20 meeting.

India's G20 presidency comes at a time when its South Asian neighbors Sri Lanka, Bangladesh and Pakistan are seeking urgent IMF funds due to an economic slowdown caused by the COVID-19 pandemic and the Russia-Ukraine war.

China, the world's largest bilateral creditor, urged G20 nations on Friday to conduct a fair, objective and in-depth analysis of the causes of global debt issues as clamor grows for lenders to take a large haircut, or accept losses, on loans.

"On debt restructuring, while there are still some disagreements, we now have the global sovereign debt roundtable with consideration of all public and private creditors," IMF Managing Director Kristalina Georgieva told reporters after the roundtable she co-chaired with Indian Finance Minister Nirmala Sitharaman.

"We just finished a session in which it was clear that there is a commitment to bridge differences for the benefit of countries."

Apart from restructuring debt, regulating cryptocurrencies is another priority area for India, which Georgieva agreed with.

"We have to differentiate between central bank digital currencies that are backed by the state and stable coins and crypto assets that are privately issued," Georgieva said.

"There has to be very strong push for regulation... if regulation fails, if you're slow to do it, then we should not take off the table banning those assets, because they may create financial stability risk."

 

 

 

Global economy faces tougher year 2023

For much of the global economy, 2023 is going to be a tough year as the main engines of global growth - the United States, Europe and China - all experience weakening activity, the Head of International Monetary Fund (IMF) said on Sunday.

The New Year is going to be "tougher than the year we leave behind," IMF Managing Director Kristalina Georgieva said on the CBS Sunday morning news program "Face the Nation."

"Why? Because the three big economies - the United States, European Union and China - are all slowing down simultaneously," she said.

In October 2022, the IMF had cut its outlook for global economic growth for 2023, reflecting the continuing drag from the war in Ukraine as well as inflation pressures and the high interest rates engineered by central banks like the US Federal Reserve aimed at bringing those price pressures to heel.

Since then, China has scrapped its zero-COVID policy and embarked on a chaotic reopening of its economy, though consumers there remain wary as coronavirus cases surge. In his first public comments since the change in policy, President Xi Jinping on Saturday called in a New Year's address for more effort and unity as China enters a "new phase."

"For the first time in 40 years, China's growth in 2022 is likely to be at or below global growth," Georgieva said.

Moreover, a "bushfire" of expected COVID infections there in the months ahead are likely to further hit its economy this year and drag on both regional and global growth, said Georgieva, who traveled to China on IMF business late last month.

"I was in China last week, in a bubble in a city where there is zero COVID," she said. "But that is not going to last once people start traveling."

"For the next couple of months, it would be tough for China, and the impact on Chinese growth would be negative, the impact on the region will be negative, the impact on global growth will be negative," she said.

In October's forecast, the IMF pegged Chinese gross domestic product growth last year at 3.2% - on par with the fund's global outlook for 2022. At that time, it also saw annual growth in China accelerating in 2023 to 4.4% while global activity slowed further.

Her comments, suggest another cut to both the China and global growth outlooks may be in the offing later this month when the IMF typically unveils updated forecasts during the World Economic Forum in Davos, Switzerland.

 

Asia losing growth momentum

Asia’s strong economic rebound early this year is losing momentum, with a weaker-than-expected second quarter. International Monetary Fund (IMF) has cut growth forecasts for Asia and the Pacific to 4.0% this year and 4.3% next year, which are well below the 5.5% average over the last two decades. Despite this, Asia remains a relatively bright spot in an increasingly dimming global economy.

Waning momentum reflects three formidable headwinds, which may prove to be persistent:

1-      A sharp tightening of financial conditions, which is raising government borrowing costs and is likely to become even more constricting, as central banks in major advanced economies continue to raise interest rates to tame the fastest inflation in decades. Rapidly depreciating currencies could further complicate policy challenges.

2-      Russia’s invasion of Ukraine, which is still raging and continues to trigger a sharp slowdown of economic activity in Europe that will further reduce external demand for Asian exports.

3-      China’s strict zero-COVID policy and the related lockdowns, which, coupled with a deepening turmoil in the real estate sector, has led to an uncharacteristic and sharp slowdown in growth, that in turn is weakening momentum in connected economies.

After near-zero growth in the second quarter, China will recover modestly in the second half to reach full-year growth of 3.2% and accelerate to 4.4% next year, assuming pandemic restrictions are gradually loosened.

In Japan, IMF expects growth to remain unchanged at 1.7% this year before slowing to 1.6% next year, weighed down by weak external demand. Korea’s growth in 2022 was revised up to 2.6% due to a strong second-quarter growth but revised down to 2% in 2023 reflecting external headwinds.

India’s economy will expand, albeit more slowly than previously expected, by 6.8% this year and 6.1% in 2023, owing to a weakening of external demand and a tightening of monetary and financial conditions that are expected to weigh on growth.

Southeast Asia is likely to enjoy a strong recovery. In Vietnam which is benefitting from its growing importance in global supply chains, IMF expects 7% growth and a slight moderation next year. The Philippines is forecast to see a 6.5% expansion this year, while growth will top 5% in Indonesia and Malaysia.

Cambodia and Thailand will expand faster in 2023 on a likely pickup in foreign tourism. In Myanmar, which has endured a deep recession due to the coup and pandemic, growth this year is expected to stabilize at a low level amid continued unrest and suffering.

The outlook is more challenging for other Asian frontier markets. Sri Lanka is still experiencing a severe economic crisis, though the authorities have reached an agreement with IMF staff on a program that will help to stabilize the economy.

In Bangladesh, the war in Ukraine and high commodity prices has dampened a robust recovery from the pandemic. The authorities have preemptively requested an IMF-supported program that will bolster the external position, and access to the IMF’s new Resilience and Sustainability Trust to meet their large climate financing need, both of which will strengthen their ability to deal with future shocks.

High debt economies such as Maldives, Lao PDR, and Papua New Guinea, and those facing refinancing risks, like Mongolia, are also facing challenges as the tide changes.

IMF expects growth across Pacific Island Countries to rebound strongly next year to 4.2% from 0.8% this year as tourism-based economies benefit from eased travel restrictions.

Inflation now exceeds central bank targets in most Asian economies, driven by a mix of global food and energy prices, currencies falling against the US dollar, and shrinking output gaps. Core inflation, which excludes volatile food and energy prices, has also risen and its persistence—driven by inflation expectations and wages—must be closely monitored.

Meanwhile, the US dollar has strengthened against most major currencies as the Federal Reserve raises interest rates and signals further hikes to come. Most Asian emerging market currencies have lost between 5% and 10% of their value against the dollar this year, while the yen has depreciated by more than 20%. These recent depreciations have started passing through to core inflation across the region, and this may keep inflation high for longer than previously expected.

Finally, spikes in global food and energy prices early this year threatened to abruptly raise the cost of living across the region, with particularly strong implications for the real incomes of lower-income households that spend more of their disposable income on these commodities.

Amid lower growth, policymakers face complex challenges that will require strong responses.

Central banks will need to persevere with their policy tightening until inflation durably falls back to target. Exchange rates should be allowed to adjust to reflect fundamentals, including the terms of trade—a measure of prices for a country’s exports relative to its imports—and foreign monetary policy decisions. But if global shocks lead to a spike in borrowing rates unrelated to domestic policy changes and/or threaten financial stability or undermine the central bank’s ability to stabilize inflation expectations, foreign-exchange interventions may become a useful part of the policy mix for countries with adequate reserves, alongside macro-prudential policies. Countries should urgently consider improving their liquidity buffers, including by requesting access to precautionary instruments from the Fund for those eligible.

Public debt has risen substantially in Asia over the past 15 years—particularly in the advanced economies and China—and rose further during the pandemic. Fiscal policy should continue its gradual consolidation to moderate demand alongside monetary policy, focused on the medium-term goal of stabilizing public debt.

Accordingly, measures to shield vulnerable populations from the rising cost of living will need to be well-targeted and temporary. In countries with high debt levels, support will need to be budget-neutral to maintain the path of fiscal consolidation. Credible medium-term fiscal frameworks remain an imperative.

Beyond the short term, policies must focus on healing the damage inflicted by the pandemic and war. Scarring from the pandemic and current headwinds are likely to be sizable in Asia, in part because of elevated leverage among companies that will weigh on private investment and education losses from school closures that could erode human capital if remedial measures aren’t taken today.

Strong international cooperation is needed to prevent greater geo-economic fragmentation and to ensure that trade aids growth. There is an urgent need for ambitious structural changes to boost the region’s productive potential and address the climate crisis.

 

 

Pakistan: IMF country report

International Monetary Fund (IMF) has released its Country Report on Pakistan after the Executive Board completed seventh and eight reviews of the Extended Fund Facility (EFF).

According to the IMF report, program implementation deteriorated after the completion of sixth review in February 2022. Amid a tense political landscape, programmed fiscal adjustment was undone and several key EFF commitments were reversed like imposition of Petroleum Levy (PDL) and grant of subsidies on petroleum products.

In June 2022, two Performance Criteria (PC) on net international reserves and the primary budget deficit requirements were not met, as well as three continuous PCs were missed.

Moreover, seven structural benchmarks were also not met. Analysts believe that fiscal deficit target of 4.6% of GDP was ambitious.

Recent floods in various parts of the country have caused major losses to human lives, infrastructure, and crops. According to Dr. Aisha Pasha, State Minister for Finance the initial estimates indicate that the losses caused by floods were close to Rs2 trillion (2% of GDP).

Considering this view, it is likely that Pakistan’s fiscal deficit will likely clock in between 6-7% of GDP for FY23.

It is also expected that IMF will consider the potential impact of floods and provide some relaxations especially if Pakistan continue to remain steadfast in implementation of reform agenda agreed with IMF.   

As per the IMF country report, Pakistan Government has recently taken major steps including the completion of prior actions that led to revival of the IMF program.

It is believed that the current political setup has taken unpopular steps recently in spite of increasing political noise. This helped Pakistan got two waivers on PCs and also brought IMF program back on track.

IMF also approved Pakistan’s request to increase the size of program by US$1 billion and extend the program till June 2023 instead of September 2022.

Waivers on PCs & extension in program tenure will provide the much needed support to the Pakistan economy.       

IMF has recommended Pakistan authorities to restore fiscal and debt sustainability, safeguarding monetary and financial stability and maintaining a market driven exchange rate.

IMF has projected GDP growth of 3.5% in FY23 with Current Account Deficit (CAD) of 2.5% of GDP (US$9 billion) and CPI inflation of 19.9%.

It is anticipated that GDP growth will be in the range 2.5% to 3.5% in FY23. Current Account Deficit is likely to remain less than 3% of GDP. 

Though, it is early to estimate the potential impact of floods on current account but risk to upward revision in current account estimate remain (close to around US$1 billion) depending upon the crop damage and the demand to meet required demand through imports.

It is also believed that pressures on current account due to crop damage could also be somewhat compensated through: 1) economic slowdown and lower demand for imports, 2) higher remittances due to flood support from expats, and 3) increased aid and financial assistance from international community.

As per IMF, gross external financing requirement for FY23 is estimated at US$31 billion and available financing is projected at US$33 billion for FY23 as against SBP’s target of US$37 billion for FY23.

Analysts believe any additional financing requirement due to higher current account could be compensated through increased foreign aid and financial flows to the country.

On the monetary front, keeping in view the recent inflationary trend (CPI Inflation of 27.3% in August 2022) and the outlook on food prices post floods, it is likely that average inflation will also cross IMF estimate of 20%.

CPI inflation is likely to remain below 24%, keeping in view the extent of damage from recent floods and potential economic slowdown.

Analysts do not expect any further hike in interest rates in 2022. In fact, it is expected to start falling from 4QFY23.

Pakistan: What exactly are we celebrating?

Pakistan’s Finance Minister, Miftah Ismail, has been extremely jubilant on the release of US$1.1 billion by the International Monetary Fund (IMF), but PDM government led by Shehbaz Sharif, has insulted the overseas Pakistanis the most, who remit around US$2.5 billion every month, by refusing to give them voting rights.

Dr. Akbar Zaidi* in his article published in Dawn has said rightly, “Such agreements might temporarily rescue governments and their economies, but these are always anti-people with deep and deleterious long-term consequences”.

He has also identified, “Perhaps the government of Pakistan chose not to read carefully beyond the headline as it highlighted numerous uncomfortable truths”.

He continues with, “On top of this, the IMF insists that the governments need to increase electricity prices and taxes on petroleum products even further, as well as keeping interest rates high.

Countries generally facing balance of payment crisis go to the IMF, known as ‘lender of last resort’. The revival of Pakistan’s agreement with the IMF was ‘sure’, after the story of Army Chief General Bajwa contacting the US Administration hit the newspapers headlines.

One tends to disagree with Dr. Zaidi’s when he says, “It was quite irrelevant since the agreement between the Government of Pakistan and the IMF was already well in place and even the request from the COAS had little value to add at this late stage”.

I am delighted with the admission of Dr, Zaidi, “The agreement which has been reached is not a new one, and is the revival, with additional, stricter, conditionalities”.

Dr. Zaidi’s statement should be an eye opener for the ruling elite, “Celebrating receipt of a mere US$1.1 billion is  a sign of how low our expectations and standards have fallen”.

While there was a possibility of a default, mostly on account of our own collective doing, the revival of the program allows only very short-lived breathing space. The deep-rooted, chronic, structural problems which affect the economy, have barely been articulated, let alone addressed.

Dr. Zaidi deserve a salute for saying, “All adjustments and actions taken in the last four months by the incumbent government were to ensure that they secure the loan. Now that they have, they have the opportunity to sit on their false laurels and easily avoid taking measures which are even more unpopular than the ones they have already taken”.

The preconditions end up raising taxes (usually regressive ones, such as indirect taxes), cutting expenditure (always development), increasing electricity and gas tariffs and other essentials, are meant to slow down aggregate demand and the economy.

With the damage caused by the floods to the economy estimated to be 10 times the amount received from the IMF, this latest rescue package is not going to rescue the people of Pakistan.

*Dr. Akbar Zaidi is a political economist and heads the IBA, Karachi.

Sri Lanka crisis: A warning to Pakistan and Bangladesh

Sri Lanka is in the midst of a deep and unprecedented economic crisis that has sparked huge protests and seen its president quit after fleeing the country - but other countries could be at risk of similar troubles, according to Kristalina Georgieva, Managing Director, International Monetary Fund (IMF).

"Countries with high debt levels and limited policy space will face additional strains. Look no further than Sri Lanka as a warning sign," said Kristalina.

She said developing nations had also been experiencing sustained capital outflows for four months in a row, putting their dreams of catching up with advanced economies at risk.

Sri Lanka is struggling to pay for crucial imports like food, fuel and medicine for its 22 million people as it battles a foreign exchange crisis. Inflation has soared about 50%, with food prices 80% higher than a year ago. The Sri Lankan rupee has slumped in value against the US dollar and other major global currencies this year.

Many blame ex-President Gotabaya Rajapaksa for mishandling the economy with disastrous policies whose impact was only exacerbated by the pandemic.

Over the years, Sri Lanka had built up a huge amount of debt - last month, it became the first country in the Asia Pacific region in 20 years to default on foreign debt.

Officials had been negotiating with the IMF for a US$3 billion bailout package. But those talks are currently stalled amid the political chaos.

The same global headwinds - rising inflation and interest rate hikes, depreciating currencies, high levels of debt and dwindling foreign currency reserves - also affect other economies in the region.

China has been a dominant lender to several of these developing nations and therefore could control their destinies in crucial ways. Buy it's largely unclear what Beijing's lending conditions have been, or how it may restructure the debt.

Where China is at fault, according to Alan Keenan from International Crisis Group, is in encouraging and supporting expensive infrastructure projects that have not produced major economic returns.

"Equally important has been their active political support for the ruling Rajapaksa family and its policies... These political failures are at the heart of Sri Lanka's economic collapse, and until they are remedied through constitutional change and a more democratic political culture, Sri Lanka is unlikely to escape its current nightmare."

Worryingly, other countries appear to be on a similar trajectory.

Pakistan

Fuel prices in Pakistan are up by around 90% since the end of May, after the government ended fuel subsidies. It's trying to rein in spending as it negotiates with the IMF to resume a bailout program.

The economy is struggling with the rising cost of goods. In June, the annual inflation rate hit 21.3%, the highest it has been in 13 years.

Like Sri Lanka, Pakistan also faces low foreign currency reserves, which have almost halved since August last year.

It has imposed a 10% tax on large-scale industry for one year to raise US$1.93 billion as it tries to reduce the gap between government revenue and spending - one of the IMF's key demands.

"If they are able to unlock these funds, other financial lenders like Saudi Arabia and the United Arab Emirates may be willing to extend credit," Andrew Wood, sovereign analyst at S&P Global Ratings said.

Former Prime Minister Imran Khan who vowed to fix some of these problems, was ousted from power although the faltering economy is not the only reason for that.

Again China plays a role here, with Pakistan reportedly owing more than a quarter of its debt to Beijing. "Pakistan appears to have renewed a commercial loan facility vis-a-vis China and this has added to its foreign exchange reserves and there are indications they will reach out to China for the second half of this year," Mr Wood added.

Bangladesh

With reserves dwindling, the government has acted fast to curb non-essential imports, relaxing rules to attract remittances from millions of migrants living overseas and reducing foreign trips for officials.

"For economies running current account deficits - such as Bangladesh, Pakistan and Sri Lanka - governments face serious headwinds in increasing subsidies. Pakistan and Sri Lanka have turned to the IMF and other governments for financial assistance," said Kim Eng Tan, a sovereign analyst at S&P Global Ratings.

"Bangladesh has had to re-prioritize government spending and impose restrictions on consumer activities," he said.

Rising food and energy prices are threatening the pandemic-battered world economy. Now developing nations that have borrowed heavily for years are finding that their weak foundations make them particularly vulnerable to global shock waves.

Pakistan: Staff level agreement reached with the IMF

Pakistan has finally reached staff level agreement with International Monetary Fund (IMF) on policies to complete the 7th and 8th reviews of Pakistan’s Extended Fund Facility (EFF). 

The agreement is subject to IMF board approval, likely in August, which will pave way for the release of US$1.17 billion bringing total disbursement to US$4.2 billion under EFF.

Additionally, in order to support program implementation and meet the higher financing needs in FY23, the IMF Board will consider an extension of the EFF till June 2023 instead of September 2022. The Board will also consider increasing the size of the EFF program to US$7 billion, up from initially proposed US$6 billion.

This support will provide some help as delays in IMF program and policy actions had led to increased economic uncertainty and a continuous decline in foreign exchange reserves.

To recall, 7th and 8th reviews of Pakistan EFF program was initially scheduled in March 2022 and June 2022 but Pakistan was not able to reach Staff level agreement with IMF due to delay in proposed policy actions like removal of petroleum subsidies, imposition of Petroleum Levy (PDL), energy tariff rationalization and increased tax measures.

It is believed that the implementation of key policy actions like increase in energy tariffs (gas and power rates) and other structural benchmarks like gradual increase in taxes on oil and implementation of anti-corruption law will remain key and will lead to IMF’s executive board approval and release of funds. 

IMF in its press release highlighted 5 key policy priorities to stabilize economy and bring policy actions in line with IMF-supported program which includes 1) Steadfast implementation of FY23 budget, 2) catch-up in power sector reforms, 3) proactive monetary policy to guide inflation to more moderate levels, 4) reducing poverty and strengthen social safety, and 5) strengthen governance.

The recently passed budget aims to reduce government’s large borrowing needs by targeting an underlying primary surplus of 0.4% of GDP by restricting expenditures and broad revenue mobilization measures.

Relating to power sector reforms, IMF noted that due to weak implementation of the previously agreed plan, the power sector circular debt flow is expected to grow significantly to about Rs850 billion in FY22.

Furthermore, adjustment in monetary policy and linkages of EFF and LTFF rates with policy rate remain the key given rising inflationary pressures. Government is also establishing a robust electronic asset declaration system and plan to undertake a comprehensive review of the anticorruption institutions (including the National Accountability Bureau).

IMF stressed that “Steadfast implementation of the outlined policies, underpinning the SLA for the combined seventh and eighth reviews, will help create the conditions for sustainable and more inclusive growth”.

It is believed that Pakistan economic situation will remain challenging due to uncertain global economic and financial market conditions along with local political situation.

Pakistan need to arrange funding up to US$35 billion during FY23 which is big task considering rising interest rates and risk averse attitude around the world.

There are expectations that few friendly countries like China, Saudi Arabia will continue financial support to Pakistan after IMF deal.

Furthermore, Pakistan is also expected to receive financing from other Bi-lateral and Multi-lateral donor agencies that could provide some support to reserves of the country.    

Moreover, after ousting of the previous Khan government through a no confidence motion, the PML-N led coalition government will be going into elections next year whereby it will be difficult to take all much needed reforms.

Though, the recently announced measured by the new government in Pakistan will help stabilize the economy and reduce fiscal and current account deficit, the overall investor confidence will remain below average.

Pakistan Eurobond yields are now at 20%-32%, local lending rate is at 20 year high of 15.87% while Pakistan stocks are down 6% (US$ down 21%) in 2022 to date.

This new IMF deal may help in some recovery of Pakistan dollar bond prices but considering the overall global interest rate environment and Pakistan rising debt a strong recovery may not come.

Similarly, Pakistan stocks may react slightly positively to this news but given Pakistan’s high lending and policy rates & other challenges like high inflation could continue to impact stock market sentiments.

Recently in its monetary policy statement SBP also highlighted key risks like high global commodity prices, rising inflation and increasing external account concerns that remain critical for Pakistan economic outlook.   

Analysts expect FY23 GDP growth of maximum 4% against government target of 5% and estimate CPI inflation around of 19% in FY23.

Global energy prices also remain the key for Pakistan. In FY22, oil and LNG imports are estimated at US$22 billion which was 27% of total import bill. A sustainable fall in oil, coal and LNG prices can provide some support to Pakistan external account.

 

Pakistan being pushed to imminent default

Having followed the rhetoric of the economic team headed by Prime Minister Shehbaz Sharif and spending hours in listening to trade and industry and economic analysts, I am forced to arrive at the conclusion that all the steps being taken are hastening Pakistan’s default process.  

If anyone is still living under some kind of illusion, he/she must understand that the foreign exchange reserves held by Pakistan have almost exhausted, whatever, numbers are being quoted are ‘borrowed’ not ‘owned’ by Pakistan.

Therefore, the top of the agenda item should be getting the US$ one billion IMF trance released. Once this amount is released only then other friendly countries and multilateral financial institutions will start disbursing the count.

Along with this, the ‘disaster recovery plan’ has to be supported by taking measures for luring remittances, boosting exports and containing import.

I believe the worst deficit being faced by the incumbent government is ‘confidence deficit’. Without mincing words, it may be said that most of the decisions taken since coming into power are not aimed at strengthening the economy but creating ‘financial chaos’.

For boosting exports, Pakistan’s competitive advantage has to be restored. Hike in interest rate, electricity and gas tariffs and POL prices will only erode competitiveness of the local manufacturers. If they can’t compete in the global markets, the objective of boosting exports just can’t be achieved.

It has become a must that economic team must learn to remain silent and avoid giving funny statements i.e. taking lesser tea. They just can’t deny the fact that no reduction has been made in the salary and perks of elected representatives, bureaucracy and judiciary. On the contrary there are proposals to increase their salaries and perks.

There is a lot of talk about ‘circular debt’ but no admission that the root cause of this menace is ‘blatant theft’ going on with the connivance of high officials of the utility companies.

Prime Minister was prompt in imposing 10% super tax on companies, but there was no is mention about taxing income from agriculture.

Always a refuge is taken behind ‘taxing income from agriculture being a provincial subject’. If taxing all income is the responsibility of the federal government why taxing income from agriculture is a provincial subject?

If the provincial governments keeps on failing in collecting tax on income from agriculture, these should be ‘stripped off’ this right.

Last but not the least; indiscriminate load shedding in the name of saving fossil oil/gas is the most illogical approach.

Therefore, there is an urgent need to produce exportable surplus by boost working of industrial units, attaining synergy and optimizing cost of production.

 

Pakistan Stock Exchange posts 2.6%WoW decline

During the week ended on June 24, 2022, news flow was dominated by the accord between the Government of Pakistan (GoP) and the International Monetary Fund (IMF). 

On Friday, the Prime Minister announced that a 10% super tax will be imposed on large sectors in FY23, causing the Pakistan Stock Exchange benchmark index to lose 1,665 points in one day, closing the market at 41,052 points or 2.6%WoW decline.

Earlier on Tuesday, it was announced that an agreement had been reached, in which the GoP revised the FBR collection target for FY23 to PKR7.4 trillion from PKR7.0 trillion.

Average volume for the Index surged to 300.5 million shares, up 72.6%WoW mainly due to Friday’s grand sell-off.

Other major news flows during the week were: 1) loan agreement signed with consortium of Chinese banks for US$2.3 billion, 2) FDI shrank 29%YoY in May, 3) cost of power generation surges by 131% YoY due to high fuel costs, 4) May banking spread plunges 42bpsMoM, 5) GoP mulled pledging five federal assets to issue Sukuk, and 6) ECC approved PKR149 billion in payments to IPPs and KE.

The top performing sectors were: Vanaspati & Allied industries, Power, Tobacco, Insurance, and Refinery, while the least favorite sectors were: Automobiles, Textile, Cement, Close-end mutual fund, and Banking.

Stock-wise, top performers were: POML, EFUG, KEL, SML, and PAKT, while laggards were: CHCC, KTML, GATM, MLCF, and JVDC.

Flow-wise, Insurance companies remained as the net sellers, offloading US$8.4 million followed by Foreigners (US$2.4 million), Mutual funds (US$1.1 million), NBFCs (US$0.7 million), and Companies (US$0.1 million), while Individuals (US$7.0 million), Banks (US$2.1 million), Brokers (US$0.2 million), and Other organizations (US$3.4 million) were on the buying side.

The super tax imposed on large sectors has come as a major shock to all players in the market. With profitability of these sectors decreasing by 10%, the market sentiment is surely negative as players look to liquidate their positions. Add inflationary pressure and rising interest rates to the mix, and this creates a strong bearish environment for the market. With that being said, the agreement with IMF is crucial for the country, with further financing now expected to be available from World Bank, China, and Saudi Arabia which will alleviate the downward pressure on the currency along with supporting the depleted foreign exchange reserves, hence having the potential to trigger a bull-run in the short term.

Pakistan one of the best customers of IMF

According to a report by The Express Tribune dated April 29, 2019, Pakistan has borrowed around SDR 13.79 billion from the International Monetary Fund (IMF), out of which 47% of the loans were secured by PPP, followed by PML-N at 35%, while the military dictatorships lag behind with a mere 18%.

Pakistan joined (IMF) in 1950 as newly established country was facing fiscal problems since its creation in 1947 from British rule. In 1958, for the first time, Pakistan went to IMF for bailout. For this, IMF lent out US$25,000,000 ‑ originally the loan-amount is given in SDR; for this article it is considered to be 1SDR = 1USD to Pakistan on standby arrangement basis on December 08, 1958.

Pakistan again went to IMF in 1965. This time, IMF gave US$37,500,000 to war-torn nation on 16 March 16, 1965.

Three years later, Pakistan again went to IMF for third time for balance of payment problems for which IMF gave US$75,000,000 on October 17, 1968.

In 1971, Pakistan lost its Eastern half, East Pakistan, after the Bangladesh Liberation War. This war caused huge loses to Pakistan. For which, Pakistan got loan a loan of US$84,000,000 in 1972, second loan of US$75,000,000 in 1973 and fourth of US$75,000,000 in 1974 to meet its growing needs. 

In 1977, a standby arrangement of US$80,000,000 was made on urgent basis. 

Three years later, an extended facility of US$349,000,000 was reached in 1980.

Struggle of Pakistan continued, as Pakistan withdrew another US$730,000,000 as Pakistan was already part of US cold war against Soviet Union.

Another era was started, as democracy came back to Pakistan but old ways to handle economy poorly continued. 

Benazir Bhutto government withdrew US$194,480,000 as standby arrangement and another US$382,410,000 in shape of structural adjustment facility commitment on December 28, 1988.

In 1990, government of Nawaz Sharif decided against going to IMF instead arranged donations from friendly countries like Saudi Arabia.

In 1993, Benazir Bhutto again came to power and her government again went to IMF and reached an agreement to get standby arrangement of US$88,000,000 on September 16, 1993.

Poor handling of economy continued by her government as she got loan of US$123,200,000 under the extended fund facility and another US$172,200,000 were borrowed on February 22, 1994.

During that period economy of Pakistan remained in poor shape and Pakistan had to go to IMF again for record third in the period of Bhutto government.

This time Pakistan got an amount of US$294,690,000 on 13 December 1995.

 In 1997, Nawaz Sharif came to power. Benazir Bhutto government was sacked and left economy of Pakistan in worst shape.

Sharif government went to IMF on urgent basis for the first time and reached an agreement to get two amounts of US$265,370,000 and US$113,740,000 on October 20, 1997.

In 2008, Yousaf Raza Gillani received a US$7.6 billion loan from the IMF.

In 2018, Imran Khan became Prime Minister of Pakistan. For this, they arranged friendly loans from Saudi Arabia, United Arab Emirates and China to avoid tough IMF conditions. 

In 2019, when economic conditions worsened, they went to IMF for the twenty-second time for a loan of US$1 billion. 

IMF gave loan based on conditions such as hike in energy tariffs, removal of energy subsidy, increase in taxation, privatization of public entities and fiscal adjustments to the budget.

Is Pakistan at the verge of technical default?

This mornings I was alarmed to listen to three rumours: 1) banks are unable to buy foreign exchange for their clients from the inter-bank market, 2) whatever US dollars are still held by the central bank just can’t be used and 3) most probably the PML-N will do, what it did in nineties ‑ freezing of foreign currency accounts of Pakistanis till the time forex starts flowing into Pakistan.

I had brief chat with some of the senior analysts and the conclusion was, “Pakistan is at the verge of technical default”.

The overwhelming consensus was, “It is not because of any weakness of the economy of the country, but due to the inability of the decision makers to make prudent and timely decisions”.

The consensus was, “If the casual attitude of the policy planners is not changed immediately, they will only hasten the default”.

The first and the worst habit of the incumbent government is that it spends more time on blaming the previous government, but does not take into accounts its own acts.

It talks about austerity, but indulges in extravaganzas.

It even fails in listening to what the International Monetary Fund (IMF) and friendly countries (also willing to support Pakistan) are saying.

The coalition partners were too keen to control the reigns, but neither had the plans to take the country out of the crisis.

Someone was indecent but may be right, “They wanted to take their names out of Exit Control List (ECL) as well get immunity to rule the country”.

They neither have the will nor the spine to make difficult decisions.

Raising POL prices and electricity tariffs are the easiest decisions because all their expenses are borne by the government.

Their thinking is still not synchronized with what the IMF is saying.

They have not only failed in containing the twin deficits (budget deficit and current account deficit) which is also proliferating the third deficit – confidence deficit.

Pakistan: How can Finance Minister sound so dumb?

I am completely shocked after reading the details of press conference of Finance Minister, Miftah Ismail, particularly his rationale for the hike in the prices of petroleum products. Two of his explanations sound too comical.

The finance minister said: 1) the decision has been taken to revive the International Monetary Fund (IMF) program and 2) the government had no other option but to raise the prices, adding that the government would still bear a loss.

Many of the readers would burst into laughter after reading that the government was aware of the political repercussions of the decision, saying "we will face criticism but the state and its interests are important to us and it is necessary for us to save it."

He didn’t have the realization whatsoever, when he said, the country could have gone in the "wrong direction" if the steps were not taken.

He said the decision was a tough one for Prime Minister Shehbaz Sharif, saying "we cannot let the state sink for the sake of politics."

He claimed the price revision was not solely due to the IMF's pressure, saying "the Fund indeed refused to grant further loan until we raise prices ... but we [also] had to take this decision after all."

One can recall, the price hike came a day after the government and the IMF failed to reach an agreement on an economic bailout mainly because of the indecision of Shehbaz Sharif government on fuel and electricity subsidies and resultant next year’s budget uncertainties.

I am inclined to draw a conclusion that the strings on incumbent government are still pulled by certain external forces, if not many of the acts sound ‘childish’.

It may be recalled that most of the analysts, even the worst critics of PML-N policies have been asking the incumbent government to announce hike in the prices of energy products and get US$ one billion tranche released.

I may also go to the extent of saying that general public was ready to accept the hike to avoid further delays in discussions with the IMF. However, Pakistanis will be right in asking the Minister, what took you so long to arrive at the conclusion which was writing on the wall?

International Financial Institutions plan to address food insecurity

Kristalina Georgieva, Managing Director, International Monetary Fund (IMF) has made a statement following the publication of a Joint International Financial Institution (IFI) Plan to Address Food Insecurity.

Russia’s invasion of Ukraine has precipitated serious economic and social consequences around the globe. Among them, many countries are now facing dangerous food shortages and sharply higher prices for food, energy, and fertilizers. 

These pressures occur at a time when countries’ public finances are already stretched from the pandemic and public debt burdens are high. With inflation reaching the highest levels seen in decades, vulnerable households in low- and middle-income countries are most at risk of acute food insecurity. And history has shown that hunger often triggers social unrest and violence.

If we have learned one lesson from the 2007-08 food crisis, it is that the international community needs to take fast and well-coordinated actions to effectively tackle a food crisis, by maintaining open trade, supporting vulnerable households, ensuring sufficient agricultural supply, and addressing financing pressures. I am honored to have been able to work together with the heads of other International Financial Institutions to propose concrete actions. Coordination between us will be critical for the plan to have maximum impact in quickly alleviating food insecurity, especially for the most vulnerable households in the most vulnerable countries.

Working closely with the World Bank and other International Financial Institutions, the IMF will provide policy advice, capacity development assistance, and financial support to catalyze and complement financing from other institutions. The IMF is investing in its monitoring capacity to allow for timely identification of countries with the most pronounced financing pressures, especially fragile and conflict-affected states, which will particularly be affected by food insecurity.

The IMF is working with country authorities on macroeconomic frameworks and policy priorities. A critical area of focus is to assist countries in their efforts to rapidly improve social safety nets to protect vulnerable households from the imminent threat of hunger. Helping members identify ways to safeguard food security without resorting to export restrictions has been another priority. These policy objectives are reflected in the IMF’s program engagement. IMF financial support for Moldova (recently augmented to help address the harmful effects of the war) and Mozambique, for instance, includes a focus on strengthening social safety nets for vulnerable households.

The IMF will also bring to bear its new Resilience and Sustainability Trust, which will provide affordable longer-term financing for countries facing structural challenges, while countries with acute financing needs could access IMF emergency financing, where appropriate. The IMF is intensifying efforts with the World Bank and others to support debt restructurings where needed.”

Background: Following a meeting of International Financial Institutions (IFIs) and global leaders convened by the US Treasury on April 19, 2022, “ Tackling Food Insecurity: the challenges and call to action,” the International Monetary Fund (IMF), the African Development Bank (AfDB), Asian Development Bank (ADB), European Bank for Reconstruction and Development (EBRD), Inter-American Development Bank (IDB), the World Bank, and the International Fund for Agricultural Development (IFAD) have worked together to formulate a joint action plan to address food insecurity.

According to the plan, the IFIs will pursue actions to step up, surge, and scale their work across six priority goals: 1) support vulnerable people; 2) promote open trade; 3) mitigate fertilizer shortages; 4) support food production now; 5) invest in climate-resilient agriculture for the future; and 6) coordinate for maximum impact.

 

Shehbaz Sharif taking Pakistan further away from reconciliation with IMF

It may be said without mincing words and unequivocally that the latest decision of Prime Minister Shehbaz Sharif not to increase electricity and gas tariffs and prices of petroleum products has pushed Pakistan further away from reconciliation with International Monetary Fund (IMF).

Yesterday he was required to approve the increases, as a preamble to the commencement of negotiations between IMF and Pakistan. On the contrary he not only didn’t approve the increase, but announced a plan to pay Rs224 billion subsidies for four months spanning March-June 2022, without giving any clue as to how this additional amount will be mobilized.

As Sri Lanka started moving towards eminent default, many experts in Pakistan also started ringing bells that the country could also meet the same fate. At present Pakistan has foreign exchange reserves barely enough to meet six-week import. In case neither IMF nor any other friendly country extend the helping hand, default looks certain.

To add to the knowledge, a ‘fitness certificate from IMF’ is a must and without it no multilateral institution will be ready to extend fund. It is on record that Saudi Arabia has also said categorically that first Pakistan has to ‘normalize’ relations with IMF and only then it will give the promised dollars.

It is necessary to reiterate that IMF has promised: 1) to extend the tenure of the current program for another two years and 2) to raise the amount to US$8 billion, from US$6 billion. Now it is for Pakistan to agree on the terms and conditions and also to meet the agreed targets.

The consultations have been scheduled for May 18, 2022 and Pakistan was required to increase electricity and gas tariffs and raise petroleum prices. To be honest the incumbent government has not only failed in meeting the pre-requisite but also providing a time line for meeting these.

Imran Khan’s opponents have already started saying that he is responsible for the current mess. However, they tend to forget that by moving a non-confidence move against Khan and accepting the offices, they have accepted the challenge to put the economy on track.

To conclude please allow me to say that the incumbent Prime Minister and his team of economic advisors have failed in the first test. Even the bigger challenge is presentation of federal budget for the next financial year.

They have two options: 1) please IMF and remain in power or 2) go for the early elections. Ironically they can’t exercise either of the option because they will lose the support of masses and will not be able to get simple majority in the next election, what to talk of attaining 2/3 majority.   

Welcome Dr. Murtaza Syed as Governor State Bank of Pakistan

With three-year term of Dr. Reza Baqir as Governor, State Bank of Pakistan (SBP) coming to an end on May 04, 2022, Dr. Murtaza Syed, the senior most Deputy Governor takes over as Governor of the central bank.

Dr.  Syed an eminently qualified economist with rich experience of dealing with International Monetary Fund (IMF) will oversee the affairs of SBP and will be part of Pakistani team negotiating with the IMF, until the Government of Pakistan formally appoints new Governor of SBP.

According to the SBP, Dr. Syed has more than 20 years of experience in macroeconomic research and policy making and worked with the IMF for 16 years before resigning to join the State Bank of Pakistan. Dr. Syed has a PhD in economics from Nuffield College at the University of Oxford and has delivered lectures on public policy at Cambridge and Oxford Universities.

Earlier Finance Minister, Miftah Ismail had indicated in a tweet that the government would not be providing an extension to Dr, Reza Baqir.

"I want to thank Reza for his service to Pakistan. He is an exceptionally qualified man and we worked well during our brief time together. I wish him the very best," the minister had added.

Following Ismail's announcement, Dr. Baqir, in a series of tweets, thanked Allah and his fellow team members for giving him a chance to serve in the public office. "To other fellow Pakistanis, especially overseas, I encourage you to consider public service," he said.

The former governor also recalled the initiatives the SBP took during his tenure, such as Covid relief packages which included Rozgar payroll loans and hospital financing, Roshan Digital Account, Raast, a framework to licence digital banks in Pakistan, financial inclusion for women, affordable mortgages for lower-income groups and others.

"I want to especially thank Deputy Governors and SBP Corporate Management Team for your teamwork and support. I also want to thank the 4 Finance Ministers and 5 Finance Secretaries I worked with over my 3 years," he continued.

Dr. Baqir said that Pakistan faced several challenges but also possessed "great strengths" to counter them. "I am confident and hopeful that we as a country will make the right choices to overcome the challenges ahead of us," he added.

Meanwhile, the news of Dr. Baqir's term has termed as "loss for Pakistan" by politicians and analysts on Twitter.

Prime Minister Shehbaz what have you done?

Looking at this advertisement published in a leading English newspaper of Pakistan has prompted me to communicate with my readers and or anyone who is worried about the fast deteriorating economic conditions of Pakistan.

I am ready to say without mincing my words that historically Saudi Arabia and United Arab Emirates (UAE) have been more than gracious in extending support to Pakistan, the first Muslim country to attain the status of ‘Atomic Power’.  

At this juncture when the negotiations with the lender of last resort, International Monetary Fund (IMF) have been marred there was an urgent need for Pakistan to have enough foreign exchange reserves, be it earned or borrowed, to meet the targets agreed with the Fund.

Since commercial borrowing could prove fatal, the only option was to approach the ‘time tested friends’, who have reciprocated as usual. Therefore, it is not a ’well-done’ by the incumbent prime minister, but graciousness of the Monarchs.

It is true that Mian Sahib, has been put in a very difficult position by the coalition partners, they don’t want to take responsibility of ‘bad’ decisions but to attain political mileage in the upcoming elections.

It appears that some of Mian Sahib’s advisors, fearful of the repercussions of ‘bad’ decisions are suggesting to sweep the issues under the carpet, which can make the things even more complicated for him as well as Pakistan.

Mian Sahib has already committed ‘double fault’ by not increasing prices of energy products, despite recommendations by the Oil & Gas Regulatory Authority (OGRA).

The harsh reality is that with each passing day, price of crude oil hovering at higher level and Rupee witnessing erosion in value the quantum of subsidy has already become unmanageable.

The sooner the incumbent government increases the tariffs of energy products, the better it will be for Pakistan. It may be a blessing that Pakistan’s friends are willing to supply oil/POL products at deferred payment, but the outstanding amount has to be settled in due course of time.

The other decisions which has offended overseas Pakistanis, remitting around US$2.5 billion per month, is ‘unwillingness’ of the incumbent government to allow them to cast their votes in the general elections of Pakistan.

According to informed sources, overseas Pakistanis have threatened to withdraw amounts kept in Roshan Digital Accounts, if they are not allowed to cast their vote in forthcoming general election.

To conclude, there is a friendly advice to the incumbent government that it must address the grievances of overseas Pakistanis without any further delay. While the IMF has indicated to give Pakistan US$2 billion over the next two years, overseas Pakistanis are sending more than this amount every month.

Pakistan must get ready to face IMF

Most of the politicians in Pakistan, being part of the ruling junta or sitting in the opposition, talk ‘bad’ about International Monetary Fund (IMF), mainly to attain political mileage. 

While every political party in opposition blames IMF of economic malice of Pakistan, but no sooner did it comes in power approaches the lender of last resort and often agrees on its (IMF) condition in the name of saving the country from eminent default.

Pakistan and IMF have a long history of love and hate relationship. Since independence Pakistan has entered into 22 bailout programs and also enjoys the distinction of the country that has entered into the largest number of programs, among the community of nations. This establishes a point, “IMF will never allow Pakistan to commit default. This has become all the more necessary after Pakistan has attained the status of ‘an atomic power’.

I am inclined to accept one of the conspiracy theories of my mentor, Masoom Shah Sindhi. He says, “IMF will never allow Pakistan to commit default, but it will also never allow Pakistan to stand on its feet firmly.” He also says, “Historically Pakistan has remained ‘Frontline Alley’ of United States during ‘Cold War Era’ as well as ‘Proxy Wars in Afghanistan’. On top of all the super power will not allow Pakistan to become a darling of Russia or China. The best tool to keep Pakistan under the ‘US Hegemony’ is to make Pakistan follow the ‘IMF Dictate’.”

I have to accept his point of view and I am also sure that you will also join me once you read my narrative. “Pakistan has lived under 22 IMF programs and the lender of last resort still talks about introducing more structural adjustment programs. This proves two points: 1) the programs introduced in the past were faulty or 2) these programs were never aimed at making Pakistan a self-sustained entity.”

Many Pakistanis may be ready to accept the ‘vested’ interest of IMF, but do have a right to raise finger at the integrity of policy planners. Ironically, the policy planners have been following IMF dictate blindly and failing in coming up with ‘home grown’ plan. The beauty is that the politicians continue ‘mudslinging’ despite having remained part of different governments under different political parties.

Enough is enough, the time has come that people of Pakistan open their eyes and ears open and watch every move of the incumbent government, headed by Shehbaz Sharif.

Time has also come that the people of Pakistan ‘dump’ the political parties and politicians who have proven to be ‘vultures’ only. They have done little for the country, except serving ‘their vested interests’.