With the economy sinking deeper and deeper in the quagmire of instability every day, Pakistan will have to conjure up a contingency plan in case International Monetary Fund (IMF) comes up with a tougher prescription with some possible noneconomic conditionalities that may lead to a no-deal.
Pakistan Tehreek-e-Insaf (PTI) led regime have so far remained unable to devise a strategy that can help them take the bull of economic deterioration by the horns. And failing to plan is actually planning to fail.
Given the circumstances, it won’t be an exaggeration to say the economy, if it comes out of the storm, is headed straight into a cyclone because of the historic poor policy and decision making in the last two months.
Exhausting a couple of options first and then deciding to approach the IMF was a blunder on the rulers’ part as it simply tipped the scales of ‘negotiation’ in the Fund’s favour.
The government must have pursued all options simultaneously because now the IMF very well knows Islamabad is left with no other option and they will have to rely upon its financing to avert the crisis that’s deepening every day.
It might result into placing more stringent conditions in the upcoming parleys expected to take place down the line between the lender and the borrower.
Instead of plunging into political point-scoring and pointing fingers at political opponents, the PTI-led government must put in place a team that could point the economy in the right direction and steer it out of crisis and on to the path of sustainable growth. It takes will and not wishes to make this happen. It requires surefire policies followed by effective execution carried out in a harmonised and coordinated manner.
Pakistan had made formal request to the IMF for securing a fresh bailout package from the Washington-based lender of the last resort for the member countries facing balance of payment (BoP) crisis. The IMF decided to send its mission to Islamabad probably within this week for negotiating a deal on account of finalising the size of financing, timeframe, and attached conditionalities.
It must be quite a worrying development for Pakistan’s economic team that the visit of upcoming mission of the IMF, conducting parleys, preparation of report, and then circulating it among members of the Fund’s executive board would definitely take 6 to 8 weeks to complete this whole process. If everything runs smoothly Pakistan’s request for securing a multibillion dollar package would be considered by the IMF’s Executive Board by end November or early December 2018, so the PTI-led government would have to ensure inflows for avoiding dollarisation until a bailout was approved.
“Now the PTI-led government is left with no other option but to have to arrange $2-$3 billion as stopgap arrangement from friendly countries to avert crisis like situation in the next one and half month period,” said an official.
Secondly, the PTI government will have to request IMF for approving front-loaded program in order to get $2 billion at least along with the first tranche in order to give confidence to the markets and boost dwindling reserves instantly.
For getting the desired results, the government will have to undertake hectic lobbying at important capitals around the globe such as the USA, Germany, Russia, Germany, France, Saudi Arabia and others to increase the size of the program, provision of front-loading and softer conditionalities. The IMF appraisal team arrived in Islamabad on September 27, 2018. Both sides exchanged data and worked out details; however, the government took time to make up its mind for approaching the IMF and did not request to hold article IV consultation so the Fund would not treat those talks as pre-requisite for converting its working for formal program.
However, many insiders consider it as a “deliberate move” of the IMF for using it as delaying tactics for providing a bailout package to Pakistan’s desperate economy.
Keeping in view this kind of tactics, some renowned economists in the last Economic Advisory Council (EAC) meeting, held under the chair of Prime Minister Imran Khan, warned the PTI-led government the international financial institutions might put in place some ‘noneconomic’ demands so the government must devise a ‘contingency plan’ for plunging the economy into any deeper crisis or any unwarranted situation.
It was a requirement of the Fund to send its mission team again after a formal request by Islamabad as the last team comprising four to five members did not have the mandate to finalise a financial package for Pakistan.
Former finance minister and reputed economist Dr Hafeez A Pasha told The News that Pakistan would have to prepare its homegrown economic reform agenda to find out solutions on economic front. Instead of implementing diktats, Dr Pasha said that there was a need to completely overhaul and restructure the economy.
What will happen if IMF comes up with conditions that are unacceptable for Pakistani side? In such unwarranted scenario, Pakistan must have a contingency plan B because Pakistan cannot wait for long in the wake of dwindling foreign currency reserves.
Total foreign reserves stood at $14.85 billion on October 5, 2018. The foreign reserves held by the State Bank of Pakistan stand at $8.3 billion, while reserves held by commercial banks are $6.54 billion.
The SBP-held reserves decreased by $101 million to $8.3 billion due to external debt servicing and other official payments. In the previous week, the SBP-held reserves saw an erosion of $627 million. This rapid depletion poses serious challenges to stability of exchange market.
This depletion of reserves weakened the central bank’s ability to intervene into market. As a result, exchange rate volatility manifolded leading to sharp devaluation of rupee against dollar where the former slid in the range of over Rs9 against the latter.
It resulted into piling up of debt liability in the range of over Rs900 billion. Thus Pakistan’s economy cannot bear the burden of such massive fluctuations of exchange rate. The stock market also nosedived as the investors are becoming more and more disillusioned of the ability of this government to bring about stability, which could be only achieved by restoring confidence.
Our being running out of time poses serious threats as the consequence of sliding into a mode of macroeconomic instability so there is a dire need to put all acts together to devise a homegrown reform plan and then pursue it consistently with or without IMF program.
The IMF program seems inevitable; however, if we do not pursue reforms on long and sustained basis we will never be able to break this boom-and-bust cycle of economy, ever.
The writer is a staff member