Pakistan knocks at IMF door to avoid default

Published: October 8, 2018
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Finance Minister Asad Umar says decision is taken after consulting leading economists. PHOTO: FILE

Finance Minister Asad Umar says decision is taken after consulting leading economists. PHOTO: FILE

ISLAMABAD: After weeks of dilly-dallying, Pakistan on Monday announced approaching the International Monetary Fund (IMF) for a bailout package aimed at avoiding default on international debt obligations and restoring confidence among the investors.

“After taking into account the current situation and consultation with leading economists, the government has decided to approach the IMF for a bailout programme,” announced Finance Minister Asad Umar through a recorded video message.

The government took the decision after friendly countries did not bail it out despite Prime Minister Imran Khan himself went to Saudi Arabia with a begging bowl.

Adviser to the Prime Minister on Commerce Razak Dawood, who accompanied the prime minister, had described his Saudi Arabia visit as “it was awful to beg from Saudi Arabia”.

To further thrash out the details, the finance minister will hold meetings with the top IMF leadership during the annual meetings of the World Bank-IMF at Bali, Indonesia later this week.

Govt hints at resorting to IMF bailout deal

The government took the decision after the prime minister on Monday won endorsements of leading economists for negotiating an IMF bailout package.

But the experts warned the premier that the loan conditions could undermine the PTI’s promise to provide millions of jobs and homes.

The members of the Economic Advisory Council and other leading economists said ‘Ayes’ after the State Bank of Pakistan informed them that the country faced approximately $10 billion financing gap that “cannot be filled without the support of the IMF”, said sources who attended the meeting.

The finance minister put a formal question before the economists: should Pakistan go to the IMF or not?

Their support would help neutralise any opposition during the IMF programme. The economists urged the government to immediately begin talks to end uncertainty in the market, as the stock market lost over 1,328 points to 37,898 at the end of first trading day of the week.

But one economist warned the prime minister that the PTI may lose the next general elections due to adverse impacts of the IMF’s conditions on jobs creation, economic growth and inflationary pressures.

Pakistan will have to take tough decisions if US blocks bailout

In his announcement, the finance minister said that in order to address underlying imbalances, fiscal and monetary actions needed to be taken without delay.

Pakistan has obtained 10 IMF programmers since the 1990s, and every new government has been forced to go to the IMF programme due to the legacy of those who held power in the previous government, according to the finance minister.

“The challenge for the current government is to ensure that fundamental economic structural reforms are carried out to ensure that this spiral of being in an IMF programme every few years is broken once and for all,” he said.

On Sunday, the prime minister said that his government was trying to convince two to three friendly countries to place foreign exchange reserves with the State Bank of Pakistan to deal with the external sector crisis.

The meeting with the economists took place four days after the conclusion of the IMF’s staff level visit to Islamabad. After the visit, Pakistan’s negotiating team also informed the prime minister that the IMF bailout package remained the only viable option for Pakistan to arrest deterioration in the macroeconomic fundamentals and restore shattering confidence of the markets.

One economist initially opposed the IMF programme and urged the government to take alternate route to bridge the $10 billion financing gap, the sources said.

His suggestion was that if it was necessary to go to the IMF, Pakistan should negotiate one-year Stand-by Arrangement, they added.

However, others opposed the short-term arrangement and instead urged the government to enter into a three-year structural reforms programme, the sources said.

Pakistan owes $6 billion to the IMF and any future arrangement would be finalised by the fund keeping in mind the outstanding liabilities.

This could reduce the IMF bailout size to around $7.5 billion, the sources said.

A former finance minister, who in the past had dealt with the IMF, informed the prime minister that the IMF would ask Pakistan to complete the unfinished agenda of the last $6.2 billion programme that ended in September 2016.

His views were that the IMF could demand pushing forward the stalled privatisation programme — including the privatisation of Pakistan International Airlines.

Stocks continue to take a hammering as KSE-100 dives 1,328 points

During one of the meetings with the IMF, he had said that if the fund wanted that the privatisation programme should fail, the fund could demand PIA’s privatisation.

The non-EAC member also told the prime minister that his government may be asked to devalue the currency by around 20%, which means the rupee will be traded at around Rs150 to a dollar.

The premier was also cautioned that at least 2.5% increase in interest rates on the demand of the fund would make credit expensive, which will hurt the PTI’s agenda to give homes to the homeless people, the sources said.

In an official handout, the finance ministry on Friday announced that “Going forward, the government of Pakistan is committed to take decisive corrective adjustments to restore the economy on the path of stability and growth”.

At the end of the talks, the IMF had also demanded “decisive actions” by Pakistan.

It underlined 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 the gas prices by 143%, though the IMF demanded a much higher increase and. It also urged Pakistan to increase power tariffs.

The prime minister was also apprised that due to strict stabilisation policies of the IMF, the economic growth rate may slow down to close to 4.2% – even lower than the IMF’s assessment, the sources said.

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Reader Comments (19)

  • cuban
    Oct 8, 2018 - 11:18PM

    The myth of Pakistan economic growth and CPEC seems to be evaporating before our eyes. One thing they have in common … lack of transparency.Recommend

  • Aamir
    Oct 8, 2018 - 11:39PM

    So many U-turns!Recommend

  • candy
    Oct 8, 2018 - 11:54PM

    The non-EAC member also told the prime minister that his government may be asked to devalue the currency by around 20%, which means the rupee will be traded at around Rs150 to a dollar.

    Makes sense. A year ago many currency experts said that rupee would stabilize at around Rs140 – but Pakistan’s economic prospects have slided since then. Pakistan squandered precious dollars in supporting the rupee and we no longer can afford that policy. Recommend

  • Bunny Rabbit
    Oct 9, 2018 - 12:14AM

    in many cases its not pumping in more money which will help , its the change of management techniques which will surely help/ Recommend

  • murli
    Oct 9, 2018 - 1:37AM

    @Aamir:
    U a bot? Same person on multiple sites making the same comment.Recommend

  • Sceptic
    Oct 9, 2018 - 2:11AM

    And Imran Khan used to brag that if he becomes Prime Minister, his government will never go out to beg loan from international institutions or foreign countries. It is not 100 days yet and the PTI government has let down its supporters on all fronts by reneging on its election promises. Recommend

  • Zack
    Oct 9, 2018 - 2:43AM

    Since 80s, two generations have come of age yet we continue to see all successive governments running upto foreign entities with begging bowls. Whatever has happened to all those previous bailout packages, aid, loans, grants and what not? Why even after 70 years we’re still living one day at time with long term financial stability and real growth?Recommend

  • Factually incorrect
    Oct 9, 2018 - 3:18AM

    “The government has already increased the gas prices by 143%, though the IMF demanded a much higher increase and. It also urged Pakistan to increase power tariffs.”
    No. Gas prices increased by 22 from 81 to 103. That is a 27% increase.Recommend

  • ABC
    Oct 9, 2018 - 8:57AM

    PML N has brought this country to the edge of bankruptcy Recommend

  • Zulu
    Oct 9, 2018 - 9:20AM

    Sir, we have excellent manpower, use them to improve economy, install export oriented production units, get help from Japan. Begging can not solve problem. Recommend

  • H.A.Khan
    Oct 9, 2018 - 11:14AM

    Hold IK and PTI to the tall promises that they will not go to IMF. Recommend

  • LL
    Oct 9, 2018 - 12:43PM

    An alternative solution could have been very strict currency controls for 5 years and the prevention of the emergence of black market exchange rates coupled with a reduction in all non-essential imports, promotion of exports and a “buy Pakistani” campaign particularly at both production and consumption levels.

    Additionally all local (particularly govt & military) transactions could be conducted solely using local currency during this period.

    This in turn would allow the country to significantly reduce its demand for foreign exchange and particularly USD, which could be over a longer-term amassed and used to pay off existing debts.Recommend

  • Omair
    Oct 9, 2018 - 1:40PM

    It is indeed a sorry piece to read. But one wonders at the audacity of those who brought us to this situation to now critique an incumbent government and the selective targeting by some section of the media without an unequivocal condemnation of past regimes. Recommend

  • Haris
    Oct 9, 2018 - 2:33PM

    For ET it maybe dilly dallying but for the learned its called thorough risk assessment.Recommend

  • Syed
    Oct 9, 2018 - 3:24PM

    Go with a three-year program with IMF. Let their agenda cover Reforms and privatization of loss-making units.
    Recover plundered money from PMLN and PPP. It will help complete the program.
    The situation is not in Pakistan favor. However, this can be made in Pakistan favor by diligently and smartly follow reforms and root out corruption.Recommend

  • Yasir
    Oct 9, 2018 - 3:33PM

    It’s not about U-turn. But think about it this way, they tried every other way before proceeding. Can’t help it unfortunately. The previous governments kept on eating the country from its core. Recommend

  • hussain
    Oct 9, 2018 - 7:29PM

    I trust your leadership Asad. the way you turnaround Engro is a prove it self. May you continue to do good. we have high expectation with you sir. In Sha Allah you will deliver. AmeenRecommend

  • hussain
    Oct 9, 2018 - 7:55PM

    I have full faith and confidence in your leadership qualities Asad. I know you can do it. In sha AllahRecommend

  • Zainali
    Oct 25, 2018 - 10:51AM

    That mean government haven’t taken the loan from imf?Recommend

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