Crisis severe, no option to be ruled out, says Asad Umar

Published: July 27, 2018
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PTI leader Asad Umer. PHOTO: FILE

PTI leader Asad Umer. PHOTO: FILE

ISLAMABAD: Asad Umar, the man tipped to lead Pakistan’s finance ministry, says no option including knocking on the doors of the International Monetary Fund (IMF) will be ruled out as the country tackles its way out of a severe economic crisis.

The Pakistan Tehreek-e-Insaf (PTI) leader is the frontrunner for the post of finance minister and would be leading the negotiations with the IMF if the government chooses to exercise the option.

Pakistan faces a mammoth task of arranging around $11 billion to fill its external financing gap in the ongoing fiscal year. The deficit is higher than Pakistan’s gross official foreign currency reserves that currently stand at $9 billion. Experts say even the IMF alone cannot fill the gap. Its 2013 bailout saw Pakistan get over $6 billion spread across three years.

Pakistan debates merits of going to IMF

The requirement alone underscores the gravity of the challenge that the government-to-be would face in its first year in power. According to election results released till late Thursday night, PTI is in a clear position to form the government in the centre with support from its allied parties and independent candidates.

“The crisis is so severe and requires measures so urgent that no option can be ruled out,” said Umar while responding to a question of whether the IMF programme was an option on the table.

However, many believe it will not be that easy to seek an IMF package, as the lender could make certain politically unpopular actions, including privatisation of state-owned enterprises, a condition for the bailout. The mood in Washington will be another factor that could play a significant role, according to independent analysts. The financing gap is the difference between external requirements and available financing. External financing needs is sum of the projected current account deficit and external debt servicing.

The Ministry of Finance, the IMF and independent economists have assessed Pakistan’s gross external financing needs for 2018-19 to fall in the range of $23 billion to $28 billion. As usual, finance ministry’s estimates of roughly $23 billion financing needs are at the lower end. The IMF has assessed the needs to be at $27 billion and independent economists like Dr Hafiz Pasha have calculated the needs to be at $28 billion.

After accounting projected foreign direct investment, net expected loans from multilateral and bilateral sources, anticipated issuance of sovereign bonds and commercial borrowings, the gap remains at a minimum $11 billion, said sources in the finance ministry. They said there was a plan to issue $3 billion sovereign bonds and get about $2 billion in foreign commercial loans.

In the last fiscal year, the finance ministry had claimed that the financing gap would be $2 to $2.5 billion but it was proven wrong.

Pakistan needs IMF support, Mulk warned

Pakistan could book a current account deficit of $18 billion in FY19 again, while it would need $9.5 billion to $10 billion for external debt servicing, said Dr Pasha. He added that in this fiscal year, Pakistan will repay roughly $500 million to the IMF and also return $1 billion sovereign bonds. “There will still be $10 billion to $11 billion as external financing gap after accounting for all the possible inflows,” said Dr Pasha. He urged to take immediate measures to avoid consuming foreign currency deposits.

The finance ministry still believes that the current account deficit would be close to $15 billion -which is nearly 17% less than the last fiscal year. It has projected external debt servicing at $8 billion. The ministry’s assessment of $15 billion deficit was based on the assumption that the regulatory and administrative measures would significantly contain the import bill. However, these measures have failed in the just ended fiscal year.

Mammoth size

However, the problem is the size of the financing gap, which could also affect the cost of borrowing.

Pakistan has a 2-billion special drawing rights (SDR) quota in the IMF, which is equal to roughly $2.8 billion. The IMF’s quota is broadly based on the size of the economy of its member country and its voting power. In 2013, the IMF had approved a $6.2-billion bailout package, which was equal to 425% of the allocated quota.

In 2008, the IMF had approved $11.3 billion bailout package for Pakistan, equal to 700% of the country’s quota.

At present, Pakistan owes $4.2 billion to the IMF, which means the country has already exhausted about 150% of its quota. This could further reduce the size of the IMF loan to Pakistan, said sources in the finance ministry.

“The new government should seek a front-loaded programme to gain breathing space early in its term,” said former secretary finance Dr Waqar Masood.

If the country manages to get an IMF programme, the Asian Development Bank and the World Bank can also restore suspended budgetary support to Pakistan. These two lenders require IMF’s letter of comfort before restoring budgetary support.

In recent months, Pakistan has thrice increased its key interest rate in addition to devaluing its currency by over 22% against the US dollar since December 2017. These two measures could address some of the concerns of the World Bank, sources in the finance ministry said.

Published in The Express Tribune, July 27th, 2018.

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Reader Comments (13)

  • Saad
    Jul 27, 2018 - 8:39AM

    Pakistan needs a magician, not a politician. It does not matter who is ruling. The economic damage that has been done needs emergency surgery.Recommend

  • Vineeth
    Jul 27, 2018 - 9:02AM

    If IMF cannot lend that much money, lease Gwadar and Karachi ports to China for 99 years like Sri Lanka did, and ask China to prop up the economy in return. Give selective preference to Chinese companies to do business in Pakistan. And oh, forget all those CPEC toll revenues as well. India with its $400 bn reserves would have been prepared to give all the billions that Pakistan needs for free, provided the country reverse its Kashmir policy and dismantle terror camps. But that is too much to ask, is it not?Recommend

  • JR
    Jul 27, 2018 - 9:25AM

    Who’s side is he on? Recommend

  • abbas
    Jul 27, 2018 - 9:41AM

    Mr. Asad Umar – we have to re negotiate CPEC projects & RLNG Prices on priority.Recommend

  • Giri
    Jul 27, 2018 - 10:03AM

    This is what happens when there is no genuine democracy in the country. Only truly democratic countries in the world have thriving economies. Civilian leadership must formulate all the policies and army should be in the barracks. Recommend

  • PAK
    Jul 27, 2018 - 11:32AM

    Ask all the pakistanis living abroad ( approx 8 million) to donate around 150$ a year and that will give you 1.2 billion $.

    Ask the residents of pakistan to donate 1500RS for the whole year ( so even if 150 million pay which is approx 66-70% of the population) we can make around 1.8 billion $.

    Just these two simple steps will give us 3 billion dollars.. and the rest we can figure outRecommend

  • Jawed Saleem
    Jul 27, 2018 - 11:50AM

    Appreciate clarifying the grave economic situation. Now that the political ruckus has subsided, the think-tanks should focus on solutions. Business friendly trade/finance/economic policies can bolster exports (and curb imports), widening tax-net, uphill task of reviving loss making institutions (pia, ps….) and austerity measures….. should help in long term.Recommend

  • Parvez
    Jul 27, 2018 - 12:48PM

    First and foremost bring the EHM responsible for this back from London……and severely punish him and his boss…..that will instill confidence and in the people.
    Enacting draconian measures on the people without showing them that some ‘ credible ‘ action has been taken…..will not work. Recommend

  • Baba
    Jul 27, 2018 - 2:55PM

    time for strict austerity measures. One quick way to raise the much needed funds is to confiscate the feudal lord` properties in Pakistan and overseas. Recommend

  • Muhammad
    Jul 27, 2018 - 3:37PM

    PTI’s has bagged votes on the slogan of Justice and accountability. Its time for action now and to deliver. Netting the big fish swiftly, like bringing back the stolen money home, taxing the multinationals, feudal landlords etc would be more than enough to avert the current economic crisis.Recommend

  • Ahmed
    Jul 27, 2018 - 5:13PM

    @Vineeth:
    India would be prepared to give its billions for free? But it cant use that money to prevent farmers suicides in India. 696 and counting from Jan to March in Maharashtra alone. But I guess this was expected from the butcher of Gujarat. Say what you want but at least our prime minister is well educated and doesn’t has blood on his hands.Recommend

  • pak
    Jul 27, 2018 - 5:22PM

    I’m sure if they were to take back the wealth of most all the corrupt leaders we can easily amass 5-10 billion dollars$. This is just the start.. It will take imran khan atleast 3-4 years to bring a small change, then he will get re-elected and after 10 years we will be one of the top countries in the world.
    !!!!!!Recommend

  • Harry
    Jul 27, 2018 - 6:56PM

    IKs Pakistan faces massive challenge of broken bankrupt economy, lack of revenue, massive expenditure largely due to oversized defence budget, undertrained and large illiterate and semiliterate but exploding population! Solution is simple: identify areas for massive expenditure reduction, increase revenue and increase education budget. But just one problem K world and thus veto from isi/army.Recommend

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