Delaying the deal

A delay in the resume of the IMF bailout programme is fast eating into the funds received

The PDM coalition government has indeed done well to secure pledges worth nearly $10 billion from the world community as flood relief. To add to this is the additional loans and rollovers amounting to $4 billion from Saudi Arabia and the UAE. For a country faced with a serious threat of default on foreign obligations – needing something like $8 billion in a couple of months – every penny of the precious foreign exchange counts. And while the government team, led by Prime Minister Shehbaz Sharif and Finance Minister Ishaq Dar, is doing all what it can to avoid the unwanted situation, a delay on its part to get the IMF bailout programme resumed is fast eating into the funds received.

The finance minister’s persistence with keeping the exchange rate low through artificial measures is a major reason behind a stalemate in the talks for approval of the ninth review by the Fund. This artificially low official exchange rate is forcing the Pakistani diaspora to resort to non-banking channel of money transfer. As a result, the government continues to lose precious foreign exchange to illegal and unauthorised currency dealers. According to official figures, remittances from overseas workers have posted an 11.1% decline in the first half of the ongoing fiscal year. The remittances fell to $14.02 billion in the July-December period of FY23 from $15.8 billion in the same period of FY22 – something that means a loss of no less than $1.8 billion, almost equal to what has been secured through UAE rollover.

For a government that has already burnt a lot of political capital in pursuit of avoiding a financial default, delaying a deal that means a further price hike is quite understandable. But with the opposite even more damaging for the economy, besides being politically unfavaourble, the government must make hay while the sun shines.

Published in The Express Tribune, January 16^th, 2023.

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