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What Lies Ahead for Pakistan at the IMF?

 
 

A delegation of the International Monetary Fund (IMF) visited Pakistan last week to hold talks with the new government regarding the country’s economic situation. The government in Pakistan is weighing options to raise funds to shore up its dwindling foreign currency reserves. The current government’s approach to avoid the IMF by looking for different financial options has not produced any tangible results. Before coming to power, the Pakistan Tehreek-e-Insaf (PTI) promised not to go to the IMF and rather to generate necessary funds by expanding the existing tax base and exploring other options. Contrary to what the PTI promised, it appears that the party has no workable option but to reach out to the IMF for another financial bailout.

Currently, Pakistan’s foreign currency reserves have plunged to $9.3 billion dollars. According to some reports, a number of international creditors have given loans of $716.5 million for the first two months of the fiscal year 2019, which are said to be only sufficient for “35 percent of estimated foreign debt serving requirement of the first quarter, further draining the foreign currency reserves.” But there’s more to worry about: according to the Ministry of Finance and the state bank of Pakistan, the country’s external debt payments in the 2019 fiscal year are likely to rise to $11.7 billion. Moreover, for this year, Pakistan’s overall external financing requirements are estimated at $31 billion, which also includes the payments of debt.

This entire situation puts Pakistan’s financial stability in jeopardy. While a number of countries have promised to help Pakistan financially, none of the international states or monetary institutions are offering Pakistan funding without tough conditions. While some states, including China, are open to giving Pakistan loans, they have placed tough monetary or trade conditions in place that have over the last few years put the country’s domestic industries at a disadvantage. A number of reports have come out suggesting that Islamabad could have negotiated the China-Pakistan Economic Corridor (CPEC) more effectively as currently Pakistan continues to take money from Beijing, which has mostly gone to debt servicing. Recently, the Kingdom of Saudi Arabia decided to join CPEC, and it has been reported that the country will fund three major infrastructure schemes under the project. While it’s encouraging that the Kingdom is joining the project, it is unclear what the new government in Pakistan had to offer to Riyadh in terms of assurances that are expected to be in the realm of military support. Other international creditors such as the IMF, the World Bank, and the Asian Development Bank always include tough monitoring conditions before offering necessary funds.

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A number of reforms that are likely to be demanded by such institutions always put a burden on any country’s domestic economy. It is likely that the IMF, before offering any new loan program to Pakistan, will ask for a number of reforms that may not be in the interest of Pakistan’s middle and poor classes. It is expected that the tax base targeting the salaried class is expected to grow and more direct and indirect taxes are likely to be called into action. Meanwhile, subsidies in the field of agriculture and other areas are likely to see a significant reduction in the coming weeks and months.

However, while this may help the Imran Khan government in gaining the necessary funds to keep Pakistan’s economy afloat for the next few years, any such measure is not only going to offer the control of the country’s economy to international actors, but will also increase the debt burden on Pakistan in the coming years. Pakistan should be preparing to pay more debt — not only on previous debts, but also on loans that the country is likely to negotiate with various international actors in the coming weeks.

This doesn’t bode well for Pakistan’s long-term economic viability as any such plan cannot assist the country in becoming fiscally self-sufficient. Moreover, there doesn’t appear to be an effort underway to support the country’s domestic industries in order to increase Pakistan’s overall exports, which have fallen significantly over the last few years. Pakistan may continue to take funds from international lenders, but any such policy is not likely to help Pakistan stand on its own economically. The government in Pakistan needs to take drastic measures in order to introduce major reforms in the economic sector, which is essential to guarantee the country’s economic viability and financial sovereignty.

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