The buck finally stops
The government has done all it can to dodge the bullet of the IMF
The government has done all it can to dodge the bullet of the IMF hoping that either the Chinese or the Saudis were going to come galloping to the economic rescue but that is not going to happen. For one thing the size of the rescue package that is needed far exceeds the capacity or complicity of either, and for another neither is currently on the best of terms with Pakistan. There is in reality only one port of call and that is the IMF, which has itself now stated that it is ‘the only viable option’. The IMF team delivered this message to the Pakistani side which in turn informed the prime minister. There can be no misunderstanding, and the message came on the day that the State Bank of Pakistan announced that foreign currency reserves have dropped to a four-year low and now stands at just $8.4 billion.
It is the misfortune of the new PTI government that they are facing a crisis that is not of their making, they have not held the levers of power long enough. Unfortunate, but there is no way to escape the macroeconomic emergency and the decisions as to how to do that rest with the PTI government and its advisers. If the confidence of the market is to be restored then the IMF is the only agency with the capacity to do that and there will be strings attached to any offer it makes. Interest rates are likely to increase, possibly to 12.5 per cent as a curb on inflation. The rupee will have to be devalued. The IMF will also want to see how Pakistan will implement the requirements of the Financial Action Task Force.
None of what is about to fall on the head of the government is going to be pain-free and all of it carries a political penalty. The PTI hold on power is marginal in some constituencies and with by-elections 10 days away this news could not have been more inconvenient. It remains to be seen whether the government has the maturity to weather the storm.
Published in The Express Tribune, October 6th, 2018.
It is the misfortune of the new PTI government that they are facing a crisis that is not of their making, they have not held the levers of power long enough. Unfortunate, but there is no way to escape the macroeconomic emergency and the decisions as to how to do that rest with the PTI government and its advisers. If the confidence of the market is to be restored then the IMF is the only agency with the capacity to do that and there will be strings attached to any offer it makes. Interest rates are likely to increase, possibly to 12.5 per cent as a curb on inflation. The rupee will have to be devalued. The IMF will also want to see how Pakistan will implement the requirements of the Financial Action Task Force.
None of what is about to fall on the head of the government is going to be pain-free and all of it carries a political penalty. The PTI hold on power is marginal in some constituencies and with by-elections 10 days away this news could not have been more inconvenient. It remains to be seen whether the government has the maturity to weather the storm.
Published in The Express Tribune, October 6th, 2018.