‘Pakistan headed towards another IMF bailout’

Published: September 4, 2016
Pakistan will eventually need to focus on improving export earnings and reducing tax evasion and avoidance. PHOTO: AFP

Pakistan will eventually need to focus on improving export earnings and reducing tax evasion and avoidance. PHOTO: AFP

KARACHI: Underlining the frailty of Pakistan’s economy, a senior economist stated that despite the government’s insistence that the economy is progressing well, several startling issues have persisted that may ultimately lead the country back to another International Monetary Fund (IMF) bailout package by 2019.

IMF confident Pakistan can now handle mild economic shocks

Highlighting some of these issues, the economist said that a burgeoning foreign debt, ever rising unemployment, low exports, slowdown in remittances, little spending on social sectors, rising cost of doing business, minimal foreign direct investment and low collection of direct taxes will drag the economy down.

“If things remain unchanged, we will see a financial crisis in the near future and would have to go back to the IMF by fiscal year 2018-19,” reiterated leading economist Dr Shahid Hasan Siddiqui while speaking at the ‘CEO Club Forum’ on Pakistan’s current economic challenges.

“The government has raised record high foreign debt and liabilities of $7.8 billion in 2016,” he said, adding that this happened despite the county saving $6 billion on account of low oil import payments amid collapsed oil prices at world markets.

However, this has not been the only source of funding for the country.

Saudi Arabia’s grant of $1.5 billion and the $1.6 billion raised from the 3G/4G auction in 2014 and 2016 helped augment the country’s foreign exchange reserves to $23 billion. “Minus these inflows, the current state of foreign exchange reserves stands at a dismal level.”

According to Siddiqui, Pakistan has received $53 billion in overseas workers’ remittances in the last three years. “Surprisingly, we have used the receipts for consumption purposes, how strange,” he said.

“Structural changes are needed to fix menaces in the economy. However, no one including the government, opposition, politicians and religious scholars are ready to make such changes under the influence of powerful lobbies,” he said.

Pakistan-IMF ties: A chequered history

Dr Ashfaq Hassan Khan, another economist, said foreign debt has swelled unexpectedly to $73 billion in 2016. “In the 90s and from 2008 to 2016, $50 billion of foreign debt was accumulated. The commonalty between these two different eras was the PML-N government,” he said.

“If the pace of foreign debt accumulation remains the same, it would be standing at $107.5 billion in fiscal year 2019-20,” he estimated. He said unemployment has encouraged youth to join extremists. “Some 2 million youth aged between 15-24 years have remained out of a job in the last few years. They might never get a job to the level of their education due to rolling-out of more graduates every year.”

To accommodate the 1.5-2 million newcomers in the job market every year, GDP growth needs to accelerate to 7-8% from the eight year average of 3.3-3.4%, he said.

Exports would remain low at $25.2 billion in FY19 and $26.5 billion in FY20, he estimated.

IMF clears way for final $102m tranche

The economist said that remittances would go down gradually as oil producing and exporting nations remain in a financial crunch.

Sohail Wajahat Siddiqui, former federal minister for petroleum, said the government took several loans to pay back the circular debt of Rs480 billion three years ago, but it has accumulated again in a short span of time.

HBL Asset Management Company CEO Fareed Ahmed Khan said the government is spending very little on social sectors like education and health. “This is making poor poorer and rich richer,” he said.

However providing an alternate view, defense analyst Ikram Sehgal said, “Pakistan’s economy remains vibrant. Problems are found in almost all the economies but they can be fixed.”

Published in The Express Tribune, September 4th, 2016.

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Reader Comments (19)

  • karachi3
    Sep 4, 2016 - 10:18AM

    The basic and fundamental problem of Pakistan is absolutely low tax collection and inefficient tax administration.

    One seriously wonders why FBR is not being reformed as per recommendations of Tax Reform Commission.Unless Pakistan gets taxes that are due there will be serious and significant challenges of economic frontsRecommend

  • Raj - USA
    Sep 4, 2016 - 10:42AM

    Pakistan will get another IMF bail out package for sure. However, it will come at a very high cost and Pakistan will be forced to devalue its currency by at least 30% if not 50%. If Pakistan refuses to accept IMF conditions, it will not get the bail out package and the value its currency will collapse.Recommend

  • johnpauljones
    Sep 4, 2016 - 11:05AM

    Our finance minister has made a professional career out of fudging and doctoring numbers.
    why should we expect anything different.
    your past is always an accurate reflection of your futureRecommend

  • johnpauljones
    Sep 4, 2016 - 11:18AM

    Exports are falling mainly because of over valued rupee which makes our product uncompetitive.
    Over valued rupee is there to feed the finance ministers over bearing,self indulgent ego.
    Release exporters refunds and rationalise the rupee value and we will see the exports spike in no time.
    Rising exports will have a deep impact on provision of jobs to the jobless.
    Alas our finance ministers agenda is different though..
    Protecting there masters ill gotten wealth and
    Making motorways and orange lines is all they know..Recommend

  • SB
    Sep 4, 2016 - 12:50PM

    A debt is a debt irrespective of its source. Recommend

  • Black Hawk
    Sep 4, 2016 - 1:03PM

    Didn’t Pakistan’s Finance minister state several times recently that Pakistan is doing very well economically & doesn’t nee IMF money to survive anymore?Recommend

  • Parvez
    Sep 4, 2016 - 2:52PM

    Another of Dar / Nawaz’s promises bites the dust…..and Pakistan stand to suffer even more.Recommend

  • TM
    Sep 4, 2016 - 4:25PM

    These news authors un necessarily are trying to create sensationalism. There is not much danger to Pakistan economy. The reason is simple- Greece which is a very small country had more than USD 300 Billion debt. Nothing worse happened to it so far. Italy, Spain and Ireland are all have 100s of billions of USD Debt. All are very small compared to Pakistan.
    So there is no need for panic. Sovereign countries can take debt and over time when the economy grows, the debts will be repaid. Up to USD 200 billion debt, no need to worry. Just focus of Industrial growth and employment creation.Recommend

  • Nasir Hussain
    Sep 4, 2016 - 4:46PM

    What about the 35 billion CPEC loan, what are the interest rates and when do we have to start repayments? Recommend

  • BrainBro
    Sep 4, 2016 - 6:02PM

    The Pakistani finance ministry made a fool out of the IMF when it promised the privatization of PIA and Electric supply companies in Punjab, but never really delivered.
    Lets see if this time around Mr. Dar can trick them again. Recommend

  • Shuaib
    Sep 4, 2016 - 6:25PM

    I think this so called ‘economist’ doesn’t even know that PPP increased our debt from $40 billion to $60-sth billion. The $7.8 billion figure includes domestic loans. The debt to GDP ratio of Pakistan will be decreasing over the next few years because our fiscal deficit is below our economic growth and tax collection growth. My goodness, journalists make for terrible economists.Recommend

  • Avtar
    Sep 4, 2016 - 9:05PM

    Strange! Other day i read Pakistan is ready to pay its debt. Now it is ready for another bailout? Who is minding the till?Recommend

  • Kulbhushan Yadav
    Sep 4, 2016 - 9:32PM

    @Black Hawk:
    What he meant was, that this is the last time IMF is giving loan to Pakistan. He just sugar coated it.Recommend

  • Shaukat
    Sep 4, 2016 - 9:42PM

    Loan after loan after loan. I heard some days back every Pakistanis owes atleast 150000 as debt. This is going to pass onto the next generation. Our next generation is only going to abuse us for what we are leaving for them.Recommend

  • OSD
    Sep 4, 2016 - 10:14PM

    This is an opinion of the economists and not facts backed up by any firm evidence. And the direct reference of PMLN clearly shows the political inclination of these people. Perhaps they can also tell us what the PPP governments, Musharaf government or the PTI government has done better to warrant such a bleak evaluation of the PMLN government? I prefer this government to all the previous ones and the mob known as the PTI! At least the current government has done something instead of focusing on corruption or rabble rousing.Recommend

  • Naresh
    Sep 5, 2016 - 12:29AM

    However providing an alternate view, defense analyst Ikram Sehgal said, “Pakistan’s economy remains vibrant. Problems are found in almost all the economies but they can be fixed.”
    This is the Silver Lining in the Dark Clouds of Doom and Gloom being spread by the naysayer.
    I am sure that Pakistan will be able to raise its Economy – GDP by say 7.5% and thus prove Ikram Sehgal right.

  • IndianDude
    Sep 5, 2016 - 12:54AM

    Pakistan does not need USA controlled IMF’s bailout. With recent signing of strategic security pact with all-weather china, who has 4 trillion of US $ in reserve, all-weather friend china will just a write a cheque for a few billion $$ (which is just a small amount) to write off pakistan’s debt.Recommend

  • numbersnumbers
    Sep 5, 2016 - 3:00AM

    Hard choice for Pakistan!
    Either actually tax Pakistani Rich Feudals and Elites, OR. Back to IMF once again for loan!
    And of course we know what the choice is! LOL!Recommend

  • Np
    Sep 5, 2016 - 3:42AM

    When you say Itsly and Spain are smaller than Pakistan, you are probably referring to their population. You should look at their GDP which is surely much bigger than Pakistan.

    As far as Greece is concerned, they are on a severe austerity program reducing their standard of living significantly compared to what it was in the past. Plus being part of EU they were bailed out by Germany. If you think China will bail you out, you are dreaming.Recommend

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