Dar’s dilemmas

Editorial Board
December 07, 2022

The ninth review of Pakistan’s IMF bailout programme is threatening to be the proverbial last straw that broke the camel’s back. Did Finance Minister Senator Ishaq Dar underestimate the...

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The ninth review of Pakistan’s IMF bailout programme is threatening to be the proverbial last straw that broke the camel’s back. Did Finance Minister Senator Ishaq Dar underestimate the challenge when he said early on he was certain he could handle the IMF? Some recent statements about being to able to manage without the Fund’s support suggest this may be the case. Of course, the intention could be to drive a hard bargain but, given the state of our economy, it has destabilized the already jittery markets. The government clutching at the straw of Russian oil and LNG is another sign things are less than perfect. While this could be an avenue to conserve our hard currency reserves, we all know oil and LNG deals with Russia can respectively take months and years to materialize even in the best-case scenarios, and we do not have that much time on our hands. Such feel-good stories, therefore, have little real significance beyond promoting a misplaced sense of complacence among the populace. That the government has to resort to this kind of gimmick could be a giveaway. It has no plan to pull the economy out of the rut – and the implication is not lost on the markets. The stocks plummeted on Monday, and continued bearish on Tuesday. The rupee remains under pressure. Pakistani bonds have nosedived in recent weeks, and the trend has doggedly refused to go away even after the treasury brought forward a Eurobond repayment by a few days last week.

The backdrop of all this desolation is the stalled IMF review, with the finance minister insisting Pakistan has met all targets of the review, and the IMF maintaining that not all quantitative targets for the July-Sept quarter have been met – without saying which has been missed. The likely sticking point seems to be a temporary hiatus on the rollout of the PDL ordered by Dar to keep the cost of living crisis from spiralling out of control. If this be the case, the IMF may want to be sure the cure it insists on does not prove worse than the disease, for there is certainly a limit to what flesh and blood can bear. What’s more, the government of a country hit by the history’s worst climate apocalypse will inevitably need a lot of leeway to match its limited resources to gigantic rehabilitation and reconstruction needs.

Meanwhile, the time window for a $1.18 billion transfer ahead of the holiday season from the IMF – hinged on the ninth review of the EFF programme – is closing as we write this. Which is as good as saying the finance minister’s immediate challenge is to keep the economy afloat through the New Year pending the IMF cash injection. And lest anyone should think otherwise, it promises to be a huge task. Given the gravity of the situation, Dar needs to get down to business: to line up hard currency inflows. His best bet may be to try and effectuate prior financing commitments from bilateral sources. He may want to rope in Prime Minister Shehbaz Sharif and jet off on a whirlwind tour of regional capitals and see if the funding commitments made ahead of the IMF programme’s revival months ago can be realized in short order. Or he may want to follow up on a proposal floated months back to sell off to Qatar a stake in an LNG terminal; or to bring in Qatari investors to revamp and run some of Pakistan’s air and sea ports. And the Saudi crown prince was looking to fly in with billions in investment only last month. What became of that? Truly, a couple of billion dollars’ worth in inflows by the New Year can not only help the economy weather the storm but also work wonders to the rupee’s performance.

In conclusion, there is a fair chance Pakistan will ride out this crisis – by piling the public debt ever higher. Some of this new debt will inevitably be short-to-medium term, adding to the already unbearable debt service burden on the national kitty. For a nation spending over 56 per cent of its tax revenue on debt service already over the current fiscal year, this is a grim prospect. Finding an answer to this conundrum will be one of the chief worries of Finance Minister Dar, whose medium-term challenge remains macroeconomic stabilization of the country, with or without IMF help.

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