IMF names new country head

Wrong assumptions over current account deficit raise eyebrows

ISLAMABAD:

The International Monetary Fund has appointed Mahir Binici as the new country head for Pakistan, while the government intensifies efforts to secure the $7 billion loan approval by the last week of September.

All this is taking place amid growing suspicions about the motives of the global lender.

The IMF's action to set wrong assumptions of the current account deficit during the last two programmes and forcing Pakistan to raise new external loans to back those numbers have given reasons to many, including Deputy Prime Minister Ishaq Dar, to question the motives of the lender.

In place of Esther Perez, Mahir Binici has been appointed as the Resident Representative for Pakistan, according to government officials. Binici a Turkish national, will replace Perez in December, they added.

The IMF spokesperson declined to comment on whether the tenure of Esther Perez has ended and Binici has been appointed in her place as the new country head.

The IMF's last two resident representatives were from Spain and had served in their native country's Ministry of Finance. Binici has served in Turkey's central bank and has expertise in macroeconomic policies, and the financial sector with a focus on emerging markets.

Binici's biggest challenge will be smoothly implementing a highly ambitious $7 billion Extended Fund Facility (EFF), which is facing risks even before its approval by the Executive Board of the IMF.

The IMF has released its board calendar till September 18th and Pakistan's case is not on the list. The central bank governor Jameel Ahmad had earlier said that Pakistan would make an attempt to secure the board approval in the first half of September.

However, a senior government functionary said on Monday that the government was now trying to secure the IMF board approval by the fourth week of September.

The IMF delisted Pakistan in August after the government could not secure the rollovers of the $12 billion cash deposits and failed to arrange an additional $2 billion in new financing.

Mahir Binici's second challenge will be to make the country office a bridge between Islamabad and their Washington headquarters, instead of keeping it a post office of Washington. In recent years, the IMF also faced a serious trust deficit from the Pakistan government, experts, and people at large.

In addition to Pakistan's own follies, the IMF's conditions have also been blamed for the country's sluggish economic growth, constant bleeding of the power sector, high unemployment, and growing poverty.

The IMF is considered the lender to turn to as a last resort. It has placed a condition on Pakistan to first arrange $2 billion in loans from other creditors to qualify for the board meeting approval.

This has forced the government to raise the most expensive loans in Pakistan's history, as the foreign lenders are not ready to offer loans at competitive rates in the absence of an IMF programme approval.

There have been growing concerns within government circles about the IMF's role in Pakistan and its programme design.

Despite criticism from all quarters, the IMF forced Pakistan to accept unrealistic targets, such as a nearly Rs13 trillion target for the Federal Board of Revenue.

The FBR has already sustained an Rs98 billion shortfall in two months, and this is expected to widen substantially in September.

On September 7th, the Deputy Prime Minister and Foreign Minister Ishaq Dar disclosed that the IMF wanted Pakistan to default in 2022.

"I was in the last government for 11 months and reviews kept going on… my assessment is they wanted Pakistan to default," Dar said while speaking at an event organised last week by the Overseas Pakistani Foundation at the Millennium Gloucester Hotel in London's South Kensington.

The deputy prime minister urged fellow politicians to be wary of this underpinning Pakistan's nuclear state status.

As the finance minister of the PDM government, Ishaq Dar also said last year that geopolitics were at play and the country was deliberately pushed towards default.

The IMF's current account deficit projections, under the 2019-22 Extended Fund Facility and Stand by Arrangement of 2023, were grossly overstated. During Dar's tenure as FM under the PDM, the IMF pushed Pakistan to arrange financing beyond its needs due to wrong current account deficit assumptions.

The IMF claimed that the country's current account deficit would be around US$6.5 billion in fiscal year 2023.

However, the government's view at that time was that the deficit would remain around US$4 billion and there would not be any need for additional financing - a hindrance in securing the approval of the review at that time.

However, the current account deficit remained at US$3.3 billion in Fiscal Year 2022-23, which proved Ishaq Dar correct. However, the IMF management did not take any action against staff dealing with Pakistan for making these wrong assumptions and forcing the country to raise additional loans at that time.

The IMF again pitched grossly overstated current account deficit projection for fiscal year 2023-24.

The fund is not allowing Pakistan to bring a major reduction in its interest rates, which should not be more than 14% to 15%, even as per the benchmarks set by the IMF. It has asked Pakistan to set headline-inflation-adjusted real positive interest rates.

For this fiscal year, the government has targeted to bring headline inflation down to 12%, but it is already at 9.6% in August. There is room to cut the interest rates by at least 5% during this Thursday's monetary policy committee meeting.

Such harsh conditions by the IMF are eroding the lender's credibility in Pakistan.