Pakistan's balance of payments worsens, likely to approach IMF next month

ISLAMABAD: The Pakistan Muslim League-Nawaz (PML-N) government has accepted the International Monetary Fund’s (IMF) pre-condition to let the Pakistani rupee depreciate by over four percent to qualify for any fresh bailout package needed to avoid a default-like situation.

Notwithstanding Adviser on Finance Miftah Ismail’s statement that the government is not seeking any IMF assistance, the latter is said to have been obliged to steer through highly difficult 2017-18 and 2018-19 financial years respectively.

The PML-N government is likely to take up the issue of new IMF financing in April during World Bank-IMF spring meetings in Washington D.C, in lieu of the worsening Balance of Payments (BOP).

According to Ismail, he does not foresee any further downward readjustment of the currency in the near future. However, officials of State Bank of Pakistan, the central bank of the country and the Ministry of Finance have maintained that lobbyists at home and abroad are working to persuade the authorities to go for another depreciation, not before June.

Sources described it as a ‘panic situation’ in the Ministry of Finance and the word ‘bottom line’ is being used for seeking an emergency USD 6-7 billion in IMF assistance, in order to make timely repayments and tackle the looming balance of payments crisis, The Express Tribune reported.

In the absence of any credible economic team, two finance ministry officials, Talib Balouch and Khaqan Najeeb, have suggested two options.

While Talib is calling for the seeking IMF assistance to ward off the impending balance of payments crisis, Khaqan suggests acquiring commercial loans continuously at a high markup. 

Since the World Bank and the Asian Development Bank (ADB) have linked their annual assistance to the IMF’s signal, seeking commercial loans, particularly from China and Chinese commercial banks, are seen a viable option to manage external inflows. 

A total of USD 1.3 billion in commercial borrowing had been obtained in the last few months, which also included USD 900 million in just one quarter.

Successive secretaries of the Ministry of Finance and governors of State Bank of Pakistan are being held responsible for having created the current economic mess due to which the fiscal and current account deficits have increased disproportionately, causing new difficulties for the country.

Meanwhile, uncertainty over the economic situation in Pakistan has grown following the release of post-programme monitoring report by the IMF that believes risks to macroeconomic stability are increasing and widening fiscal and external deficits could land the country into new trouble. 

The timing of the report has been termed "intriguing" by independent economists as it eroded investors’ confidence. Experts have said that the IMF officials were ‘partners in crime’ as they had been waiving things by giving a clean bill of health to the Pakistani economy during the three-year USD 6.67 billion Extended Fund Facility that ended in September 2016.

The report pointed out serious risks that the belief of IMF officials surfaced after the completion of the programme. In fact, experts are suggesting that as long as the IMF programme continued, Pakistan’s economy will keep on collapsing.

The PML-N government will complete its five-year term by early June this year. By at that time, external debt and liabilities would have crossed the USD 100 billion mark, which also includes the USD 2.5 billion added by the latest depreciation of the Pakistani rupee.

The Pakistan government plans to have its revenue collection target fixed at 4.5 trillion Pakistani rupees for the financial year 2018-19.

Furthermore, the country will be forced to go for a strict stabilisation policy in the name of "austerity". But there is a growing consensus that the so-called stabilisation has caused problems to the economy’s growth.