The next 24-48 hours are crucial for Pakistan and its economy. Conflicting reports about the talks between the government and International Monetary Fund (IMF) – scheduled to conclude on Thursday (today) – have cast doubts about whether Islamabad will be able to win back the stalled $7 billion lending programme.
While Prime Minister Shehbaz Sharif has once again assured the IMF that his government will fulfil all their prerequisite conditions, State Minister for Petroleum Musadik Malik’s latest statement suggesting there are “sufficient useable stocks of petroleum products available in the country”, on the eve of the conclusion of the talks gives dual meanings.
In case of a further delay in the resumption of the programme, Pakistan will undoubtedly default on its international payments but will it become another Sri Lanka? Will the citizens of Pakistan face acute shortages of food and medicines? Wait in long queues for hours (possibly days) for petrol?
Financial experts have ruled out the possibility of the talks ending on an inconclusive note. Instead, they are extremely optimistic about the government succeeding against the IMF, averting default, restructuring debt and talking tough economic reforms.
Speaking to The Express Tribune, Ismail Iqbal Securities Head of Research Fahad Rauf said, “In case of another delay in the resumption of the programme, which is unlikely, the government will default on its foreign debt repayment as it will want to utilise the low foreign exchange reserves to survive.”
Secondly, a shortage of essential goods – including food and medicines – coupled with high inflation will become imminent. “Inflation will spike by 50% compared to the current projection of 30-35% after the IMF programme’s implementation. The rupee’s devaluation will be steeper compared to the current consensus for the currency consolidating between Rs265-275/$. Similarly, imports and exports will slow to half for a brief period, a majority of industrial units will shut down and the agriculture and service sectors will also face the heat, he predicted.
“Pakistan may become another Sri Lanka. People will be standing in long queues to buy petrol and diesel,” he said, adding that in such a scenario, people may take to streets.
“Pakistan cannot afford such a huge social crisis. Instead, the government’s recent moves strongly suggest it will convince the IMF to resume its programme,” said Rauf, adding that considering Pakistan has taken the tough decision of ending its control over the rupee-dollar exchange rates and increasing petrol prices, it will comply with the other conditions too.
Alpha Beta Core CEO Khurram Schehzad also ruled out another delay in the resumption of the IMF programme. “Pakistan has to return to the lender in any case – today, before the default or tomorrow, after the default.”
“The IMF is the lender of the last resort – it came into being to help nations avoid default,” he explained. This is the third or fourth time the country is making efforts to revive the ongoing programme in the past three and half years. This has annoyed the lender and that is why it is taking a hard position. While there are chances the talks may be extended by a couple of days, but the ongoing talks will end on a conclusive note, he said.
Meanwhile, the rupee made a notable recovery of 1.08% (or Rs2.95) to close at Rs273.33 against the US dollar in the interbank market on Wednesday on anticipation that the government will convince the IMF to resume its loan programme.
On the other hand, gold dropped by an additional Rs2,000 per tola (11.66 gram) to Rs198,000 in Pakistan after the rupee-dollar parity appreciated. The commodity has cumulatively decreased by Rs10,500 per tola in the past four days.
Published in The Express Tribune, February 9th, 2023.
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