Fiscal safety net

Of one thing we may be certain — the incoming government was not the architect of the monumental financial crisis the country currently faces. Responsibility for that lies squarely at the doorstep of the past government (excluding the interim setup) and it is a legacy that could prove toxic for the incomers. There is no quick fix and Pakistan needs real money fast. Foreign exchange reserves (Forex) have depleted to around $9 billion and there has been much speculation, some of it poorly informed, as to an early approach to the IMF, perhaps as early as September this year.

Although representatives of the new government have been doing the way-paving for an IMF approach they would like to avoid it if at all possible, and Pakistan is not without its friends — though as ever friends come with strings. It is reliably reported that the PTI has been given assurances that further loans from China are on the cards — Beijing has already made a recent cash injection of $1bn to shore up Forex — at the same time cautioning that the federal government needs to ‘take tough corrective measures’ to address the deficit, a signal that pain is imminent.

Also helping to weave the safety net — maybe — is Saudi Arabia courtesy of an approach made by the last government that is being revisited by the PTI. The government will seek $5bn from KSA to add to whatever else it can cobble together and avoid the IMF, in part because anything from the IMF is going to come with a necklace of caveats that when implemented are going to do nothing in the eye (and pocket) of the average person for the popularity of the federal government.

The proverbial chickens are coming home to roost and there is nothing beyond taking urgent and painful short-term measures the newbies can do about it. The architects of our misfortune are no longer in power but have vowed to make life difficult for the new government wherever they can and with numerical margins so tight in parliament that is not going to be hard. Prepare to tighten your belts.

Published in The Express Tribune, August 15^th, 2018.

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