Crippling foreign financing needs

Finance Minister Miftah Ismail bundled a grim economic forecast in his announcement that Pakistan will probably reach an agreement with IMF this month — the country will need about $37 billion in foreign financing in the next fiscal year.

Also concerning is the fact that over half of the amount — $21 billion — will go to debt repayment, while the rest will be needed to cover the current account deficit and shore up reserves. The government does not intend to raise funds through bonds or from commercial banks but will instead focus on international financial institutions and development banks. This is because Pakistan’s international bonds have lost about a third of their value, while their yields have gone up, placing further stress on the economy.

Miftah also said bilateral borrowing and aid are on the table, but contingent on approval for the IMF programme. Outside of borrowing, he also gave details on several economic reforms the government is working towards. He noted that growing agricultural output is critical to cutting the current account deficit, as billions of dollars are spent on importing wheat, cotton and cooking oil alone. He emphasised the need to control inflation, arguing that it would help bring stable economic growth. This is of critical importance because achieving high economic growth is not a big deal for a country with a massive young population, but maintaining growth requires serious planning and deficit management. His deficit reduction strategy also includes slashing energy subsidies and industrial realignment — no more import-led growth, focusing on export-oriented manufacturing, and major reforms in the agri sector

On the subsidy, he was critical of the fact that the biggest beneficiaries of fuel subsidies are the rich, implying that the money saved on fuel subsidies— about thrice the size of the government expenditure — could be better spent elsewhere. Unfortunately, almost every past government has tried to implement their own versions of these measures without any significant success. We can only hope that the results are different this time.