[News Analysis] Brisk depletion of SBP’s foreign currency reserves: IMF giving economic managers tough time

By Mehtab Haider

ISLAMABAD: The International Monetary Fund (IMF) has left Pakistan in the lurch, making it difficult for economic managers to adopt a feasible path for steering the economy out of the crisis mode in the absence of Fund backing.

The IMF has gone into the mode of “wait and see” policy amid increasing political uncertainty on the political cum economic horizon of the country at a time when the foreign currency reserves held by the State Bank of Pakistan (SBP) are depleting at a high speed.

During the week ending on November 25, 2022, the SBP reserves decreased by $327 million and stood at $7.49 billion due to external debt repayments. Although, the SBP received $500 million on account of the AIIB loan, it would have to repay $1 billion on account of the maturity of Sukuk bond. So, the SBP reserves in reality will be standing at around $7 billion by December 9, 2022.

In such an alarming situation, the IMF has not yet given its firm schedule to conclude the pending 9th Review under the $7 billion Extended Fund Facility (EFF) programme. On all accounts, the existing EFF programme remained an awkward one because the first time it was seen that the IMF shifted responsibility onto the shoulders of Pakistan’s economic managers to bridge the financing gap on the external front. Under the IMF programme, it is the responsibility of the Fund to manage the external sector requirements of the recipient country.

One top official who had dealt with the IMF programme in previous years told The News that the IMF left Pakistan in the most difficult situation and that did not make any sense. When any country faced a balance of payment difficulties, it approaches the IMF. Pakistan did the same but the IMF was showing reluctance to rescue Islamabad, thus pushing it towards complete insolvency. The IMF knew that Pakistani authorities lacked the capacity to devise a feasible revised macroeconomic and fiscal framework, then why the IMF was not preparing documents acceptable to both sides, he asked.

Does the IMF want to push the country towards the brink of default and then provide help when the country bows down on its knees? What circumstances is the IMF waiting for to go for rescuing Pakistan’s economy? Does IMF pursue a politically-dictated agenda to penalise Pakistan for standing on the wrong side of the USA and the Western world? If Pakistani authorities are responsible for the economic mess, then the IMF is equally responsible as the country had signed 23 programmes since its inception but failed to fix the macroeconomic instability.

The IMF has rejected the revised macroeconomic and fiscal framework shared by the Pakistani authorities and termed both tax and non-tax revenues targets were contrary to the ground realities. On the expenditure side, the IMF has sought details of flood-related expenditures. The Ministry of Finance in its official communication has sought details of flood-related development projects. The government has diverted its SDGs funding of Rs82 billion being utilised through each parliamentarian to the tune of Rs500 million for inclusion into flood-related expenditures. The government also utilised additional funding through the BISP as a total of Rs103 billion was disbursed for flood-affected areas in the first phase of rescue and rehabilitation.

The development spending has been proposed to be slashed by 50 percent as the Ministry of Finance conveyed to the Planning Ministry to cut down the PSDP allocation from Rs727 billion to Rs350 billion maximum.

On the expenditure side, the subsidies were another bone of contention, including power sector subsidies, energy subsidies for export-oriented industries the Kissan package and others.

Experts said without waiting for a run down on depleting foreign exchange reserves, now the time has come when the IMF should come forward to rescue Pakistan’s economy from disaster.

This scribe sent out a question to the IMF mission in Pakistan, inquiring about the time-frame for the conclusion of pending 9th Review under the EFF programme but got no firm response from the Fund staff till the filing of the story.