ISLAMABAD: The International Monetary Fund (IMF) on Wednesday started reviewing the state of Pakistan’s economy under mandatory assessment in a bid to determine real challenges, including a weakening external financial position. However analysts do not see any possibility of a new loan programme in the face of delay in politically sensitive reforms.
The first round of technical talks between Pakistan and the IMF kicked off in Dubai and will continue until November 14. This will be followed by policy dialogue for two days.
A finance ministry official said under Article-IV of IMF’s Articles of Agreement, the lending agency would assess short to medium-term risks to Pakistan’s economy and subsequent vulnerabilities that could pose serious challenges to macroeconomic stability.
Secretary Finance Dr Waqar Masood recently said both the sides would not discuss a new bailout programme. Despite the end of the previous $11.3 billion programme, the government would like to have smooth relationship with the IMF and the Dubai meeting was one such step, he said.
According to the finance ministry official, the deepening global recession was posing an immediate risk to Pakistan’s economy that could widen the trade deficit. Drop in demand for Pakistani goods in the world market may also have an adverse effect on revenue collection, creating budget financing problems, he added.
Both the sides will also review the possibility of a price shock in the midst of the global recession that would not only eat up foreign exchange reserves but might also put extra burden on state finances in case the government opted to grant subsidies, he said.
According to him, implications of drawdown of US forces from Afghanistan for Pakistan’s security and economy will also be reviewed.
The country’s current account deficit – the gap between external payments and receipts – widened to $1.209 billion in the first three months of the current fiscal year from $597 million in the same period last year.
Foreign exchange reserves dropped to $17.15 billion in the week ended October 28, a decline of $1.16 billion since reaching the peak at $18.31 billion at the end of July. Analysts are of the view that upcoming IMF loan repayment of $1.2 billion, due on February 24, will put extra pressure on currency rate and foreign exchange reserves. However, the finance ministry argues there will be no trouble in repayments as funds have already been allocated in the budget.
“First quarter economic indicators are worrisome but Article-IV consultations will not lead to a new programme as it was Pakistan’s choice to pull out of the IMF standby arrangement,” said Dr Hafiz Pasha, former finance minister.
However, he said weakness in the financial account following the current account sparked worries as it was an unusual scenario in the past.
Other independent experts say the government will not seek a fresh IMF loan because of its inability to implement tax and power reforms. They point out that the government believes that foreign exchange reserves are enough and will easily take it to general elections due in the first half of 2013. Moreover, the US has also refrained from extending assistance in getting an IMF loan.
Published in The Express Tribune, November 10th, 2011.