Red alert: Our external financing needs will mount to $45 billion by 2022. For this year, our gross external financing needs stand at a colossal $26 billion. In simple English: over the following year, we need to borrow $26 billion in order to make ends meet. And, four years from today we will need to borrow $45 billion in order to make ends meet.
To be certain, Pakistan’s treasury is a leaky bucket with a dozen major leaks. The biggest of all these leaks is the trade deficit and that leak alone is around $38 billion (trade deficit is the amount by which our imports exceed our exports). The other major leak is the budgetary deficit that is now over Rs2.2 trillion (budget deficit is the difference between the government’s revenues and expenditures).
The leak on account of losses in what we euphemistically refer to as public-sector enterprises (PSEs) is now over than Rs1.1 trillion every year. The leak in the power sector is around Rs400 billion every year. The leak in what the government euphemistically calls ‘commodity operations’ is over Rs450 billion.
For the past 70 years, we have been begging, borrowing and stealing just to fill these leaks – no government has ever worked on plugging these holes. The PML-N government, since June 2013, borrowed a hefty $43 billion – a 50 percent increase over five years. And, this is in addition to Rs7 trillion borrowed locally.
Who is going to lend us $26 billion? China? Saudi Arabia? Highly unlikely. But this is not even the real question. The real question is: how are we going to plug the leaks? China cannot help us plug the leaks; neither can Saudi Arabia. Can we plug the leaks on our own? Possible, but not probable (we will not do it without an external monitoring programme). And, the only global financial institution with a monitoring programme is the IMF.
The World Bank, which lends us $4 billion a year, depends on the IMF’s monitoring programme. The Asian Development Bank, which lends us $2 billion a year, also depends on the IMF’s monitoring programme. Yes, the IMF will insist on a debt sustainability analysis, particularly on Chinese loans. Yes, the IMF will insist on plugging the circular debt. We will have a choice to cut down on electricity theft, restructure the energy sector, or jack up the tariff. Yes, the IMF will insist on slashing the budgetary deficit. We will have a choice to cut down government expenditures or increase taxes.
Yes, the IMF will insist on the devaluation of the rupee. Yes, the IMF will insist on increasing the rates of interest. To be certain, diaspora bonds are equivalent to band-aids to treat cancer. To be sure, loans from ‘friendly’ countries are akin to aspirin to cure kidney failure.
We have been trying to suppress the symptoms for decades. We must now work on curing the disease. We are going to need $26 billion this year. We would have to work with the IMF. What we are going to need is a strong negotiating team to safeguard Pakistan’s interests.
The writer is a columnist based in Islamabad.
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