Pakistan on the verge of seeking IMF bailout, experts claim

Published: August 23, 2017
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Current account deficit shoots up, imports increase due to devaluation rumours. PHOTO: REUTERS

Current account deficit shoots up, imports increase due to devaluation rumours. PHOTO: REUTERS

Current account deficit shoots up, imports increase due to devaluation rumours. PHOTO: REUTERS PHOTO: REUTERS

KARACHI: Pakistan’s economy is once again fading due to endemic issues on the external front including a high current account deficit (CAD) that has ballooned three times to $2.05 billion in the single month of July 2017 year-on-year.

The widening deficit is fast eating up foreign exchange reserves and the time may not be far when economic managers of the country shall be negotiating a new bailout package with the International Monetary Fund (IMF) if the situation persists.

IMF, Pakistan fail to see eye to eye in assessment of economy

The fault-line in the economy, CAD, has badly shaken the Pakistan Stock Exchange (PSX) – a barometer which reflects economic performance on a day-to-day basis.

Many seasoned economists and analysts strongly believe devaluation of the overvalued rupee against the dollar and other major world currencies is one workable solution to containing the deficit.

On different occasions during 2016, the IMF said Pakistan’s currency is overvalued by as much as 20%.

Dollar trading closed at Rs105.36 per dollar in the interbank market on Tuesday, according to the State Bank of Pakistan (SBP).

A chief operating officer (COO) of a leading asset management company said devaluation of the rupee should be decided at the earliest since procrastinating would allow the rupee to get more overvalued with the subsequent depreciation being equally severe.

There is a sense in the market that the government will sooner or later devalue the currency. This perception has caused imports to increase with traders stocking up on imported items to safeguard themselves in the event of rupee devaluation, which would make the former more expensive to buy.

Increased imports due to this perception are further widening the CAD.

“In my opinion, 7%-8% devaluation in real term would be enough and it should be done in one-go instead of doing it gradually,” the COO said.

Mirroring similar views, a former governor of SBP said the much-needed initiative would prove to be a short-term solution. He stressed on increasing value-added exports as well since the purpose of devaluing the currency is to make exports cheaper (hence attractive) and imports expensive (hence less desirable).

“4-5% devaluation is the immediate solution,”Arif Habib Limited Head of Research Shahbaz Ashraf opined, adding that this will address foreign investors’ concerns at the PSX and allow them to stop selling and start buying.

“This may attract a few hundred million dollars in Pakistan and partially finance CAD,” he claimed.

Topline Securities lists devaluation, regulatory duty on non-essential imports, export promotion, dollar bonds and bilateral borrowing as short-term measures for stabilising the economy.

Pakistan returning to IMF?

Economist Dr Ashfaque Hasan Khan foresees the widening CAD to be creating a serious balance of payments crisis for Pakistan by March-April 2018 forcing the government to re-negotiating a bailout package with the IMF by that time.

IMF data bloats Pakistan forex reserves by $3bn

He estimates CAD to be around $16-16.5 billion during fiscal year 2017-18 with another $7-7.5 billion needed for debt servicing, taking the total amount of foreign exchange required to $24 billion in FY18.

On the contrary, he estimates Pakistan’s receivables to amount to $12.5 billion from several sources including the World Bank, Islamic Development Bank, Asian Development Bank, AIIB, bilateral grants, Chinese financing and Foreign Direct Investments, he said. “The finance minister should be asked how and who will fill the financing gap while reserves are drying up,” he remarked.

He deplored that the current government’s preoccupation with politicking will leave Pakistan with no other option than to go to the IMF.

Published in The Express Tribune, August 23rd, 2017.

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Reader Comments (21)

  • Imran
    Aug 23, 2017 - 9:52AM

    But I thought the nawaz government was doing a brilliant job? Recommend

  • BrainBro
    Aug 23, 2017 - 9:56AM

    IMF bailout will not happen if Pakistan takes the US head-on. IMF is US basically.Recommend

  • Hatim
    Aug 23, 2017 - 10:11AM

    Tall claims of the government busted. Recommend

  • Suleman
    Aug 23, 2017 - 10:21AM

    Does seem rather inevitable.

    More loans from China may provide a sticking plaster for now, but remitances are set to fall noticeably and exports only slowly recovering.Recommend

  • Merwais Khan
    Aug 23, 2017 - 10:55AM

    Now the question is, What if USA takes away his support in IMF bails? As things got worst with U.S, you can expect anything. If it’s rejected then we are in a boiling water!Recommend

  • Baligur
    Aug 23, 2017 - 12:06PM

    We will need to fight the militants in order to appease the US and get it’s approval for the bailout. Without it the IMF won’t give us a cent.Recommend

  • Insaaf Hussain
    Aug 23, 2017 - 12:12PM

    We must not lose sight of Kashmir. At this critical time, defense spending should be given priority over all other spending. With CPEC our fortunes will change, so fight for Kashmir should come first.Recommend

  • Raj
    Aug 23, 2017 - 1:10PM

    Only few months back pakistan proclaimed that, it has broke the begging bowl and also cursed the IMF for putting conditions for the aid. Then how the current issue is coming?Recommend

  • Komal S
    Aug 23, 2017 - 1:28PM

    IMF=US and this gives leverage to USA. Pakistan needs to get its act together. Assuming China is going to help unconditionally is only going to hurt her. Recommend

  • Ali Javed
    Aug 23, 2017 - 1:41PM

    Thanks Nawaz Sharif & Ishaq Dar for your brilliant work !! Thanks for getting each citizen Rs100,000 of debt. Excellent achievement. By the way let me know when the load shedding will end because there is no light in my house.Recommend

  • AQ
    Aug 23, 2017 - 1:43PM

    Nawaz and Zardari have drowned Pakistan economy fools still think they are eligible for vote.Recommend

  • Atif
    Aug 23, 2017 - 1:51PM

    I thought CPEC was a game changer !!Recommend

  • ishrat salim
    Aug 23, 2017 - 1:55PM

    This was inevitable as predicted by independent Pakistani economists, which was rejected by the govt time and again. The present govt of PML N as per their election slogan, was supposed to break the kuchkol, but they replaced it with a bigger kuchkol ( begging bowl ) and took loans – a record in 70 years history. Yet, the elite & literate class will not understand but support the govt, as they can afford rise in prices of food & essentials items while the poor will not get even 2 square meal. How are we going to answer to Allah swt ? Recommend

  • juggernaut
    Aug 23, 2017 - 2:02PM

    @BrainBro: Why going to IMF, CPEC hai na…Recommend

  • Feroz
    Aug 23, 2017 - 2:35PM

    No need for asking from IMF, China will provide interest free loan to demonstrate the strength of the friendship.Recommend

  • vinsin
    Aug 23, 2017 - 3:43PM

    China should give Pakistan 10% of her foreign reserves i.e $300 Billion. China is Pakistan friend.Recommend

  • Pakistani
    Aug 23, 2017 - 5:18PM

    the merge of MCB and NIB has effected the Dollar. Mian mansha took max $ from makrket .they wont speak about itRecommend

  • s.khan
    Aug 23, 2017 - 10:07PM

    Pakistan was also on the verge of bankruptcy in 1998-99 when Nawaz Sharif was
    in power. Given his magic touch it should have been predictable he would push
    to the brink again. These short term band aids, IMF bail out or Chinese loan, won’t
    solve the problem. What imports can be curbed in the short term and what can
    be substituted in the medium term along with exports promotion should be
    important component of trade policy. Is there a trade policy or is it on auto pilot?
    What about the clandestine capital outflow to buy properties in Dubai and elsewhere?
    Capital controls should be imposed. However it will be difficult if the policy makers
    are involved in secret capital outflows. This makes it crisis prone situation. Foxes
    are guarding the hen house. Recommend

  • Dev
    Aug 24, 2017 - 8:45AM

    @Ali Javed:
    Really sad to hear the pain of common, innocent people.Recommend

  • Sayan Chakraborty
    Aug 24, 2017 - 1:53PM

    Pakistan does not have enough forex reserves to take loans as per world bank, the only option pakistan has is to continue doing american dirty works in afghanistan.Recommend

  • MJ
    Aug 24, 2017 - 10:08PM

    Say hello to Dollar becoming equal to Rs. 150 in the coming few months. IMF is not going to give any money to Pakistan without Pakistan devaluing it’s currency. Recommend

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