Money Matters

Liabilities & vulnerabilities

Money Matters
By Zeeshan Haider
Mon, 10, 18

The Saudi loan package and oil on deferred payment facility have given Pakistan Tehreek-e-Insaf (PTI) government the much-needed breathing space to avert the balance of payment crisis and take steps to stabilise the economy.

The Saudi loan package and oil on deferred payment facility have given Pakistan Tehreek-e-Insaf (PTI) government the much-needed breathing space to avert the balance of payment crisis and take steps to stabilise the economy.

Talks are also underway to secure a similar package from the United Arab Emirates (UAE).

Foreign Minister Shah Mehmood Qureshi, after meeting a high-powered UAE delegation, has announced that his government is seeking oil on deferred payment from the UAE too and reports suggest that the entire package may amount to another $6 billion.

In early November, Imran Khan is embarking on his first official visit to China as Prime Minister and the Chinese ambassador to Pakistan has announced that “big news” could be expected from this visit, suggesting that a financial support from the ‘all-weather friend’ is also forthcoming.

All these financial packages would not ease pressure on Pakistan’s depleting foreign exchange reserves in the wake of huge current account deficit but would also strengthen government’s hand to negotiate a small loan package from the International Monetary Fund (IMF) and on better terms and conditions.

Both money and stock markets, which were performing dismally over government’s indecisiveness, responded enthusiastically to a loan package from Saudi Arabia and the prospects of similarly good packages from the other countries as well as a bailout package from the IMF on favourable terms.

Before receiving recent financial support assurances from friendly countries, Pakistan was facing tremendous pressure from the United States, which has a dominant say in the IMF, over China-Pakistan Economic Corridor (CPEC).

But it is not for the first time that Pakistan has got such level of support from the friendly countries or from the IMF to fix its economy.

The main challenge for the PTI-led regime is to deliver where the previous governments failed to do so. The government, capitalising on the breathing space provided by these financial loans, must take long-delayed and difficult structural reforms failing which it would be back to square one.

Practically, Pakistan has a year’s time to put in place the requisite reforms aimed at bringing about economic stabilisation.

The Saudi government has promised $3 billion as balance of payment support for one year, while it also pledged a one-year deferred payment facility for import of oil, up to $3 billion. This arrangement, according to official statements, stays in place for three years and will be reviewed thereafter.

The package from the UAE is also likely to follow the Saudi suit in terms of conditions and structure.

With the exception of Pakistan People’s Party (PPP) 2008-13 term, the country has been getting such financial support from its Arab friends from 1998 to 2018.

When Pakistan faced financial crunch after 1998 nuclear tests, the Saudis gave oil on deferred payment to Pakistan which continued even under the military rule of General (Retd) Pervez Musharraf until 2004.

When Nawaz Sharif came to power in 2013 for the third time, Saudi royal family extended financial support of $1.5 billion to help Pakistan overcome balance of payment challenges. But the objective of pulling the economy up out of the dumps could not be achieved either because of the governments’ failure to carry out painful structural reforms for political reasons or political instability.

The main question is whether the government led by Prime Minister Imran Khan would be able to overcome these challenges in the coming years. Khan and Finance Minister Asad Umar have vowed to bring about those reforms, but at the same time they have warned the nation that “change comes at a cost” so there would be hardships in the wake of these overhauls.

Before these reforms take into effect and start producing results, the people have to bear their brunt like general inflation and comparatively higher utility prices.

But the main question is whether the government is strong enough to absorb any political shocks if the opposition tries to cash in on the public anger.

The previous Pakistan Muslim League-Nawaz (PML-N) government enjoyed comfortable majority in the parliament yet it had to back down on some of the crucial commitments it made on the economic front like privatisation of the sick public entities like Pakistan International Airlines (PIA).

The PTI government holds a razor-thin majority in the National Assembly and does not have comfortable majority in the biggest province of the country, Punjab.

In such a situation, it would be interesting to see how the PTI would cope with the challenges arising out on the political front.

Moreover, the opposition is also expected to increase pressure on the government to disclose the terms and conditions of the deal with Saudi Arabia.

Though government leaders have made it clear that no conditions have been attached with the Saudi money but the geopolitical developments taking place in the region particularly in the Middle East are raising many questions.

The two main opposition parties, PPP and PML-N, have asked the government to bring the matter to the parliament. The government has not yet given any indication in this regard.

In 2015, Pakistani parliament unanimously rejected a call from Saudi Arabia for Pakistan to send its troops to Yemen where Iran-backed Houthi rebels are fighting against Saudi-supported government.

The move drew a very strong response from the Gulf countries with Anwar Mohammad Gargash, the UAE minister of state for foreign affairs, threatening Pakistan as well as Turkey, which also refused to send troops, of ‘heavy price’ for their ‘ambiguous stand’ on Yemen crisis.

The question is whether the present government would take the risk of taking the matter to parliament?

Pakistan tried to placate its traditional Arab allies, who got angered over parliament’s rejection of their request for allowing General (Retd) Raheel Sharif to act as commander of a coalition force of nearly two dozen of Muslim nations under the stewardship of Saudi Arabia.

Traditionally, Pakistan has stayed neutral in case of conflict between Muslims countries and has tried to mediate between them to resolve their differences.

Former prime minister Nawaz Sharif and General (Retd) Sharif had tried to mediate between Iran and Saudi Arabia but it ended without any success.

Prime Minister Imran Khan has renewed that effort and has again indicated that he would try to mediate in the Yemen conflict though there is a strong scepticism that whether this attempt would succeed.

But the prime minister needs to forge a consensus at home and take political parties into confidence before taking this initiative.

The writer is a senior journalist based in Islamabad