Pakistan may opt for another International Monetary Fund (IMF) monetary package, after the lender raised concerns over the country’s ability to repay foreign debts in the next financial year.
Amid reservations over Pakistan’s ability to take tough decisions in an election year, and broken promises of the last financial package, Pakistan and the IMF held discussions in Washington on the state of the economy and the financing required to avert any fiscal crisis next year.
“Both sides discussed recent economic developments, the outlook for the Pakistani economy, and financing requirements,” one of the participants of the meetings said. He added that IMF conveyed its concerns regarding the vulnerability and persistent risks to the fragile economy.
“Based on the current outlook, Pakistan’s short and medium term prospects do not look good,” the official said, adding that the country’s external position – ability to make foreign payments – would weaken significantly in fiscal 2012-13. He stated that the major risks highlighted in these meetings were the rising commodity prices, surge in the oil import bill and the upcoming deadline on the payment of external debt that will diminish foreign currency reserves.
According to a recent IMF report on Pakistan’s economy, gross external financing requirements in the next fiscal will be $10.5 billion.
Pakistan and the IMF have a chequered history. The last monetary programme worth $11.3 billion ended prematurely with $3.4 billion not disbursed. Pakistan failed to ensure central bank autonomy, reform of the energy sector and the implementation of the Reformed General Sales Tax. All the unimplemented conditions will hold priority for any new financial assistance.
“The next IMF package is written on the wall, the only question is when it will be approved,” Business School of National University of Sciences and Technology Dean Dr Ashfaque Hasan Khan said. He reiterated that Pakistan will require $4.3 billion next year just to pay off the IMF debt.
All is not doom though. Both sides noted some encouraging signs on the external accounts, particularly the current account deficit that widened by only $142 million in March. Current account deficit is slightly over $3 billion, $300 million more than what the finance ministry had assessed for the entire fiscal.
New programme with caretaker govt
According to an insider, a new programme with the IMF will be signed before the end of the current year. He said that after the upcoming budget, Pakistan will implement a shadow programme that includes implementation of some of the conditions that were unmet. If Pakistan successfully manages to implement some of the prior actions agreed in the last programme, the new package could be signed by a caretaker government.
However, he warned that the IMF will seek guarantees and political ownership, as it has previously experienced a situation where terms and conditions agreed and signed by caretaker governments were not fully implemented by the new government. The official remarked that the IMF would not approve fresh credit but may rollover the repayments.
An important signal of getting a fresh package will be “the softening stance of the United States” that will also give a signal to the World Bank to extend fresh loans to Pakistan to provide it breathing space.
Published in The Express Tribune, April 22nd, 2012.