Govt hints at resorting to IMF bailout deal

Published: October 6, 2018


IMF sign. PHOTO: REUTERS Finance Minister Asad Umar. PHOTO: PTI

ISLAMABAD: Pakistan on Friday announced that it was ready to take ‘decisive corrective measures’ to put the national economy back on track, raising the prospects for early finalisation of an International Monetary Fund (IMF) bailout package, carrying huge political and economic costs.

The Ministry of Finance issued an official handout that had striking similarity with IMF’s views. It indicated that the government had finally made up its mind to go to the IMF.

The handout was issued a day after the economic managers informed the Prime Minister that the IMF was the only viable option to steer the country out of its current economic crisis.

“Going forward, the government is committed to taking decisive corrective adjustments to restore the economy on a path of stability and growth,” stated the finance ministry.

IMF suggests higher interest rate, rupee depreciation

It said that the government believed that fiscal and price adjustments alone “are not sufficient”, and unless the much-delayed deep structural and institutional reforms were implemented “with (an) unflinching resolve, the entrenched imbalances plaguing the economy will keep resurfacing”.

“Additional decisive policy action, anchored in a comprehensive strategy, and significant external financing will be needed in the near term,” the IMF had stated after concluding its staff-level visit to Islamabad.

The Fund insisted that “policies should include more exchange rate flexibility and monetary policy tightening, further fiscal adjustment … strengthening the performance of key public enterprises together with further increases in gas and power tariffs”.

The government has already increased gas prices by 143% and is set to increase power tariffs by at least 61%.

The IMF said that these steps would help reduce current account pressures and improve debt sustainability.

The IMF, it is learnt, urged Pakistan to follow a free-float exchange rate regime, besides increasing its interest rate to a minimum of between 11 and 12.5%. But these measures could undermine the PTI government’s plan to create 10 million jobs in the private sector and building five million housing units.

The IMF said that Pakistan was facing significant economic challenges, with a declining economic growth, high fiscal and current account deficits, and low levels of foreign exchange reserves.

Official forex reserves plunged to $8.4 billion by September 28 this year, hitting the lowest level in nearly four years.

The finance ministry said that the IMF mission had highlighted imminent challenges facing Pakistan’s economy, including accumulation of losses in public-sector enterprises, non-execution of structural reforms, weakening of institutions and lack of domestic resource mobilisation, among others.

The finance ministry said that corrective measures recently taken by the government in the mission’s view were steps in the right direction. But it added that the visiting team was of the view that further actions were required for correcting major economic imbalances.

According to the finance ministry, the PTI government had inherited a fragile economy since critical economic decisions were delayed by the previous government in an election year. Prompt decisions on monetary, exchange rate and fiscal policies could have averted the economic downturn that Pakistan was now facing, it added.

The ministry underlined Pakistan’s commitment to protecting the poor and vulnerable segments of society, promising to invest more in social protection, human development and job creation to ensure that the burden of adjustment was not unjustly imposed on the weaker segments of society.

Pakistan needs to raise $20b to avoid payment crisis

This statement suggested that the finance ministry was ready to increase interest rates, devalue rupee and levy more taxes to qualify for the IMF programme.

The IMF also stressed that once stabilisation started to take hold, the focus should increasingly shift to reforms to foster sustained and inclusive growth, strengthening key institutions.

Priority areas, it said, included modernising the tax system and public financial management, strengthening fiscal federalism arrangements, improving governance and eliminating losses of public enterprises, enhancing the SBP’s autonomy, intensifying AML/CFT efforts, improving the business climate and anti-corruption efforts, and fostering the economic inclusion of the poor, youth, and women.

The IMF said that the PTI government’s recent policy measures were steps in the right direction, but insufficient. “Decisive policy action and significant external financing will be needed to stabilise the economy,” it said.

The IMF said that Pakistan’s current economic situation reflected the legacy of an overvalued exchange rate, loose fiscal policy and accommodative monetary policy adopted in the past.

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Reader Comments (8)

  • dosteinsaaf
    Oct 6, 2018 - 8:56AM

    Why IMF? What happened to our great friends China and Saudi Arabia? Why aren’t they sending us $50 billion to tide over our difficulties?Recommend

  • Hashim
    Oct 6, 2018 - 1:00PM

    PTI’s election promises were never in the picture to begin with. The country could never afford such largess. Winning the election was a poison pill because now they will have to enforce austerity which will ruin their reputation and they will struggle to win the next election. Recommend

  • Engr.Amir Sultan Rana
    Oct 6, 2018 - 2:21PM

    Nevertheless if its pragmatic, just go ahead. Need to see viable results for Pakistan economy. I will still reinforce for long term plans. Long term economic plans for the country Pakistan in regard to current standing.

    Pakistan should address its economic up-bringing and tell others that with the passage of few years, we will be in much comfortable position to manage our finances well.

    During this time, Pakistan will still further for maintaining its GDP and overall growth. Deal with IMF should be done in good prospect which paves good relations between Pakistan and IMF.

    Keeping all accords straight Pakistan should never compromise on its high inflation and massive rupee depreciation. Should be done in a balance way.

    Best of luck Pakistan. Recommend

  • Humza
    Oct 6, 2018 - 8:40PM

    @dosteinsaaf: What about PTI and Imran Khan’s claim of not asking anyone for anything? Maybe he can do crowdfunding and other great ideas. It only proves that he is an amateur and his words mean nothing.Recommend

  • Naresh
    Oct 6, 2018 - 11:13PM

    dosteinsaaf : Why IMF? What happened to our great friends China and Saudi Arabia? Why aren’t they sending us $50 billion to tide over our difficulties?
    The IMF conditions are more strict but their “Rate of Interest is Lower”. The Chinese Rate of Interest is much higher as evidenced by the Interest Rates charged by the Chinese for the CPEC, Highway, Power Projects and other Infra Projects.

  • Rumaisa
    Oct 7, 2018 - 12:05AM

    Is this what PTI campaigned for ,this Naya Pakistan falling back on past bad habits? To continue to become a slave to the debt shark of the West . As usual ordinary citizens who receive no public benefits from the government will face indirect taxation regardless of whether they are earning or not.All to bear the cost of maintaining a government that does NOTHING to provide even basic services to the public. In Pakistan we have a topsy turvy economic system where the ordinary person is bankrolling the excesses of the state and their cronies.Recommend

  • Avtar
    Oct 7, 2018 - 7:26AM

    May be China can decrease its charges to the level of IMF for an all weather friend.Recommend

  • zaffar
    Oct 9, 2018 - 5:50PM

    One shouldn´t look to others for help.It is our created mess and we should clean it ourselves.Recommend

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