After exhausting all options from friendly countries especially from Saudi Arabia and China for obtaining financial packages, the Pakistan Tehreek-e-Insaf- (PTI) led government is all set to kick-off formal parleys with the International Monetary Fund (IMF) mission this week to ascertain the size and shape of a possible bailout program and its terms.
Despite a near weeklong agitation that held whole country hostage following Tehreek-e-Labbaik Pakistan’s (TLP) nationwide protests that it launched disputing a Supreme Court ruling, IMF mission’s schedule remains unchanged.
The team will land in Islamabad on November 7, 2018 and will stay there for almost two weeks to finalise details of possible 36-month Extended Fund Facility (EFF) program, if both sides agreed on a macroeconomic and fiscal framework for the given period, size of the program, and exact conditions.
Pakistan had already secured $6 billion packages each from both China and Saudi Arabia. Saudi Arabia had provided $6 billion package to Pakistan under which $3 billion would be provided for being deposited with State Bank of Pakistan (SBP), while remaining $3 billion would be provided for oil facility on deferred payment for a year’s period.
This delayed payment oil facility will be provided for three year but after one year the government will have to clear the outgoing year’s bill. This three-year oil facility will be reviewed after the expiry of three years so there are chances that it may continue for a longer period if both sides evolved consensus.
Pakistan has prepared a three-year framework on macroeconomic and financing requirements of the country in order to align projections with the IMF program. The gross financing requirement of next three years is projected in the range of $80 billion to $90 billion as the first year’s financing requirement (for 2018-19) stands at $30 billion.
Although, Saudi Arabia’s $3 billion are now available with the SBP, those funds cannot be utilised for financing the yawning current account deficit.
This $3 billion swap funds will help build up foreign currency reserves position. China had already granted $2 billion swap funds early this fiscal year to shore up dwindling reserves.
In the last fiscal year, China had provided over $5.5 billion mostly through commercial banks. The China-Pakistan Economic Corridor (CPEC) funding got slowed down as so far around $250 million has been spent on the CPEC projects against over $2.2 billion last fiscal year.
Now China has made commitments for providing $6 billion more including granting more swap funds for further bolstering foreign currency reserves but it will be really a help for Islamabad if Beijing agrees to extend $1.5 billion to $2 billion in the shape of grant money.
However, it’s an ironic development that the multilateral and bilateral creditors funding had shrunk below $1 billion during the first quarter (July-Sept) period of the current fiscal, witnessing a downfall of 30 percent compared to the same period of the last financial year, conceded one top official of Economic Affairs Division (EAD).
He added that the whole pipeline of foreign inflows in the shape of project financing got choked mainly because of inability of Islamabad to approve donor-funded projects owing to political transition in last few months and then imposition of ban on development funds slapped by the Election Commission of Pakistan.
There is a serious need to amend the laws pertaining to the powers of future caretaker setups as the country cannot afford to delay important economic decisions for several months. In the last caretaker setup, the economy was thrown at the mercy of fate and indecisiveness played havoc with it. Pakistan, which used to receive millions of dollars from multilateral creditors, has now failed to secure anything close to it in the last six months.
The PTI-led government in consultations with other political parties will have to introduce changes in law for empowering the future interim governments for taking economic decisions on immediate basis instead of postponing them up to next elected governments because indecisiveness always takes a heavy toll on the economy.
The former finance minister Dr Shamshad Akhtar had adopted the wait-and-see policy and took no decision the cost of which is being paid by the PTI regime. One such example is the holdup of the meetings of Central Development Working Party (CDWP) and Executive Committee of the National Economic Council (ECNEC) that resulted into choking the whole pipeline of donor-funded project financing from all multilateral and bilateral creditors. The government must devise a strategy to avoid such issues for the coming governments after the completion of its tenure.
Now after Saudi Arabia and China’s expected assistance, the picture is becoming clearer for the country’s economic team. Although, Pakistan’s economic team had gained some strength after getting a breathing space, one thing had become crystal clear that Pakistan still requires IMF program to come out from economic morass. However, Islamabad’s negotiation strength has increased and economic managers could now secure the bailout package at better terms and conditions.
The government will now have to formulate such a homegrown program that can be easily sold to the multilateral donors. The government has also finalised its privatisation plan under which all loss-making entities will be divested, but is needed.
Pakistan’s economic managers argued that the current account deficit was on the decline as it reduced to $900 million from an earlier level of $2 billion on monthly basis. If this trend continues in the remaining nine months of the current fiscal then the overall deficit will fall around $11 billion-$12 billion for the current fiscal year against an $18 billion last year.
The IMF’s bailout package seems necessary for the ailing economy, but it needs to be secured on the basis of a homegrown economic agenda with a clear cut vision to restore country’s macroeconomic stability, followed by the achievement of a higher growth trajectory and job creation. Only such a plan will steer the economy out of the crisis mode on a long-term and sustained basis.
The writer is a staff member