Pakistan banks on Saudi Arabia to avoid default

ISLAMABAD:

In what appears to be an alternative to the International Monetary Fund (IMF), Finance Minister Ishaq Dar expressed the hope on Wednesday to receive a $3 billion second bailout from Saudi Arabia within days, vowing to raise money through sale of assets to beef up the critically-low foreign exchange reserves.

At a joint press conference with the government’s economic team, Dar showed his commitment to the IMF programme but at the same time stressed that he would not take any steps that would put a burden on the people. At the presser, Dar did not say categorically that the National Security Committee (NSC) clearly backed the IMF programme plan.

Dar addressed his longest press conference since October along with for Planning Minister Ahsan Iqbal, Energy Minister Khurram Dastgir Khan, Economic Affairs Minister Ayaz Sadiq, Information Minister Marriyum Aurangzeb and State Minister for Finance Aisha Ghaus Pasha to respond to the Pakistan Tehreek-e-Insaf’s (PTI) criticism of the government’s economic performance.

“God willing, in matters of days, Saudi Arabia will beef up reserves”, said Dar, while responding to a question whether there was any concrete commitment from any foreign nation to avoid the crisis. Later on, he told The Express Tribune that Pakistan would receive $3 billion from the kingdom.

Twice in the past three months, Dar had said that Saudi Arabia would give $3 billion cash –the second bailout in the past one year. It is stated that the matter is now pending before the Saudi King for his final consent.

Due to the gravity of the situation, the civil-military leadership has discussed the economic situation more than twice in the past one week, including at the highest level –the NSC.

“The National Security Committee was satisfied and there is nothing to worry about”, said Dar, responding to a question that the NSC’s handout was vague on the IMF question and it talked more about long-term plans.

The finance minister did not say categorically that the NSC backed the plan to go to the IMF, but stressed that there was consensus that everyone would work together to come out of the present crisis.

Dar said that the rollovers of the loans “is not an unusual thing”, as all the nations opt for borrowing new money to pay old liabilities or they opt for rollover. We are opting for rolling over deposits,” said Dar. He added that China would reimburse $1.2 billion shortly but did not say whether Beijing would also give fresh loans.

By June 30th, the foreign exchange reserves position would be “exceptionally good compared to where Pakistan is standing today”, claimed the finance minister.

“The government is also working on government-to-government transactions, which include sell-off of assets and divestment of shares but it will not happen overnight,” said the finance minister, while laying bare his plan to beef up the official foreign exchange reserves in six months.

However, these measures have been under discussion for the past eight months. Dar said that the sale of the two LNG power plants and shares of the government listed-companies under the government-to-government deals were the low-hanging fruits.

The finance minister once again claimed that the “government is committed to the IMF programme. At the same time, he added: “We will not take measures that may increase burden on the common man” – a statement that will not go well with the IMF demands.

The IMF has asked for a plan to end additional Rs500 billion circular debt, increase in energy prices, imposition of new taxes, letting the rupee gain its real value and achieve the primary budget surplus targets, excluding flood related expenses – the conditions that will stoke inflation that is already standing at 25%.

Dar said that inflation was very painful, that was why he reduced fuel prices thrice and kept them stable for the past three months. “Can we put burden on the nation in these circumstances, no we cannot”, said Dar, while responding to a question about the measures needed to be taken for the sake of the IMF programme.

But the finance minister said that the government was going to impose flood levy to raise funds for the flood-related rehabilitation and impose a windfall income tax on the banks that made huge profits through currency manipulation.

The Express Tribune had reported last week that the government was going to promulgate a presidential ordinance to give effect to these steps. However, these measures are short of what the IMF has been asking for. “I will do my best to complete the second IMF programme after the first was too completed in my last tenure”, Dar added.

Dar said that his wish was that 9th and 10th reviews of the IMF programme should be clubbed but it is the lender’s right to make the final decision. The 9th review period was July-September but the government could not get it done before the end of November. Now, the 10th review for the October-December 2022 period has also become due.

“Default, default and default mantra should be stopped as it is harming Pakistan”, pleaded the finance minister. He insisted that the government was fully positioned and making all the payments. He stated that Pakistan’s reserves were “pure till 2018 and no other country had deposits in Pakistan” at that time. But China at that time too had placed $1 billion, compared to a total of $9 billion today by Saudi Arabia, China and the United Arab Emirates.

“Consolidation of the economy and containing the inflation is our top agenda but there are no shortcuts and it will take some time,” said Dar. “The situation is such that the government cannot float eurobonds,” he admitted. He blamed Imran Khan’s politics that harmed Pakistan and led to downgrading of Pakistan’s credit ratings – a major obstacle in floating the eurobonds.

“As a nation we need introspection. In 2016 the country was poised to take off but was pulled back due to Imran’s politics that destroyed everything in the past four years”, Dar said. “Imran Khan is worse than Yahya Khan”, he thundered.

The finance minister stated that the PTI’s white paper, released a day ago, was deceiving and most of the macroeconomic figures were wrong. He criticised the PTI for “deceiving” the masses through its “white paper” on the economy.

In its document, the PTI painted a gloomy picture of the economy and said that inflation in the country had seen a sharp rise in the past eight months. Dar stressed that the economy was in a “better condition” during Pakistan Muslim League-Nawaz’s (PML-N) government compared to PTI’s four-year tenure.

“The PTI presentation was selective, misrepresented and economic indicators were misleading,” Dar said. He added that the comparisons made in the white paper were incorrect and devoid of economic context.

He said the economic situation since April 2022 was strongly influenced by the legacy that the new government borrowed from the previous regime, hence what the Pakistan Democratic Movement (PDM)-led government received that should be the denominator for comparison.

However, he added, this context was missing from the PTI presentation while it had also ignored the international economic situation, the commodities super-cycle, Russia-Ukraine war impacts and catastrophic floods in the country. He said that these realities should have been kept in mind for making fair analysis.

He said the IMF had predicted that one-third of the globe would be in serious recession in 2023 and Pakistan was no exception. He said the fund had projected economic growth at 2.7%. To a question, Planning Minister Ahsan Iqbal said that the prices were shooting up due to Punjab’s failure to enforce its writ.