Another IMF loan may be on the cards

Speakers at event say economic flaws built over past 75 years continue to exist

Salman Sidiqui January 13, 2022
A man walks past the International Monetary Fund (IMF) logo at its headquarters in Washington, U.S., May 10, 2018. Photo: File/REUTERS


Pakistan is heading towards acquiring a new loan programme from the International Monetary Fund (IMF) following the completion of the existing $6 billion bailouts as economic flaws, built over the past 75 years, continue to exist.

The domestic economy is facing three major challenges -- low export earnings, declining saving rate and the spike in global commodity prices.

"Another IMF programme is inevitable after the current one finishes,” Pakistan Business Council (PBC) CEO Ehsan Malik said. “Perhaps, the new government will have to do it."

State Bank of Pakistan (SBP) Governor Reza Baqir highlighted the three challenges at present as well as three positive developments in the domestic economy during the world biggest historical crisis of Covid-19 after World War II.

They were speaking at the fifth anniversary of 'The Future Summit – What's Coming Next?' organised by Nutshell and Martin Dow on Wednesday.

While criticising some of the tough conditions of the IMF for the resumption of the current programme including the increase in energy tariff and taxing the already taxed businesses, Malik hoped that the next programme of the global lender would be “better designed and structured”.

"You cannot hope to get rid of your fundamentals flaws that built-in 75 years in three years [IMF current programme from July 2019 to September 2022]. It is simply not possible. So, this (next) programme has to be better structured."

Earlier, the incumbent PTI government in the Centre had claimed time and again the ongoing programme would be the last one.

Previous governments including those of the PML-N and PPP had made similar claims.

SBP Governor Baqir said the three challenges that kept the nation repeatedly going back to IMF in the past were higher debt-to-GDP ratio, unsustainable current account deficit (or balance of payment) and decline in the country's net foreign exchange reserves buffers.

Proactive measures by Prime Minister Imran Khan’ government and the central bank to deal with the Covid-19 pandemic's challenges have, however, improved the three economic fundamentals.

"Pakistan's debt-to-GDP ratio declined 2.4% over the past two years, while the ratio increased by on an average 18% by developed countries and 10% by emerging market economies during the pandemic," Baqir added.

Pakistan's foreign exchange reserves have continued to increase over the past two and two-and-a-half years despite the pandemic.

Read Finance Division requests IMF to postpone review till end of Jan

"Our foreign exchange reserves stood equivalent to our forward liabilities [around $7 billion each] in 2019. Accordingly, our net reserves buffers stood at zero in 2019," he said.

"Despite the existence of Covid, we have increased our net reserves buffers [SBP foreign reserves at around $10 billion minus forward liabilities at less than $3 billion in February 2020]."

Proactive measures like adjustment in the policy rate and flexible market-based exchange rate have helped control current account deficit in 2020 and 2021 and supported achieving V-shape (quick) recovery in economic activities last year.

At present, the same adjustment in the policy rate and the flexible exchange rate has enabled moderating the overheating economy in the wake of the spike in global commodity price and revival in aggregate demand in the domestic economy, the SBP governor said.

Besides, the SBP injected over Rs2 trillion [5% of GDP] into the economy through different monetary measures.

Pakistan's exports have started increasing from last year.

"The exports would still remain low if they increase to 8-10% of GDP against compatible [peer] economies," Baqir added.

“There is a great need for an increase in the saving rate.

“Low saving rates agreed governments go back to international lenders in the past."

Speaking at the event, Sindh Governor Imran Ismail said eradicating corruption from society was not an easy job.

"There are still institutions where works are not done without bribery. We are fixing the Federal Board of Revenue (FBR) and Customs," he added.

He maintained that textile manufacturers and exporters had booked high profits in the past three years that they could not make in the prior 10 years.

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Pakistan Stock Exchange Chairperson Shamshad Akhtar said climate change was worsening. It is taking a toll on human health and the global economy.

"Pakistan stands at the fifth number on the list of most vulnerable countries in the climate scenario," she said, adding there was a need for introducing amendments to rules and regulations to safeguard from the climate worsening.

Air Chief Marshal (retd) Sohail Aman said leadership remained the most important element in every aspect of life including navigating through difficult times into a certain future.

"Advancement of technology is astonishing [today], but it is the leadership which creates the enabling environment," he added.

Faith, innovation, passions and empowerment of others by the leadership remain the four major steps "to navigate into the future."

Engro Corporation President and CEO Ghias Khan said Covid-19 had amplified economic challenges like making the current account deficit unsustainable.

“There is a great need to increase exports and create import substitution to make current account deficit sustainable. A hybrid working environment is to say…it is a new normal.”

Habib Bank Limited (HBL) President and CEO Muhammad Aurangzeb said innovation did not mean just deploying technology, but it was about "thinking out of the box."

He added that digital banking and customer experience would lead the banking sector to stay in business while moving forward.

Faysal Bank President and CEO Yousaf Hussain said Islamic banking had become the choice of customers.

"It [shariah-compliant banking] is helping accelerate financial inclusion in Pakistan."


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